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Hero Honda Falls in Mumbai After Report of Higher Royalties

Dec. 2 (Bloomberg) -- Hero Honda Motors Ltd., India’s biggest motorcycle maker, fell the most in more than four months in Mumbai trading after Business Standard newspaper reported the Hero Group agreed to pay its Japanese partner, Honda Motor Co., a higher royalty to maintain a technology alliance.

Hero Honda fell 7.5 percent, the most since July 26, to 1,781.2 rupees at the 3:30 p.m. close of trading in Mumbai. The Bombay Stock Exchange’s Sensitive Index rose 0.7 percent.

The company agreed to royalty payments of 8 percent of net sales, compared with between 2.2 percent and 3 percent a year currently, the newspaper reported, citing people it didn’t identify. The Hero Group, which holds a 26 percent stake in the New Delhi-based venture, and Honda are in talks about renewing a technology-licensing agreement that expires in 2014.

“There is a lot of speculation on the royalty issue,” said Umesh Karne, an analyst at Mumbai-based Brics Securities Ltd. “It is very difficult to comment on how much the royalty payments will increase. The company has not given any clarification on the issue.”

Hero Honda Chief Financial Officer Ravi Sud didn’t answer calls to his mobile phone. Yoshiyuki Kuroda, a spokesman for Honda, declined to comment on the Business Standard report.

To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net.

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net.

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