Honda Motor Company Limited, the Japanese auto giant, saw a sharp surge of 16% in its share price on 24th December 2024. The sudden rise resulted from the company announcing a buyback of around $7 billion (1.1 trillion yen) on the previous day. What factors backed the buyback decision, and how will it impact the company’s financials? Let’s decode.
The Honda And Nissan Merger
The recent buyback announcement follows Honda and Nissan’s decision to merge. The two companies and Mitsubishi Motors have agreed to start talks on a potential business integration. This move aims to boost their competitiveness in the electric vehicle (EV) market and challenge Tesla and Chinese automakers’ dominance. The companies signed a memorandum of understanding (MoU) to explore forming a joint holding company.
The merger is expected to generate combined annual sales of 30 trillion yen and operating profits of over 3 trillion yen. Discussions are expected to wrap up by June 2025, and the new holding company will launch by August 2026. Honda and Nissan’s shares will be delisted, and the new holding company will be listed on the Tokyo Stock Exchange (TSE).
Honda will lead the joint venture, appointing the president and most board members. This merger is a strategic move to strengthen their positions in the fast-growing EV market.
Overview of Honda Motor Company
Honda was incorporated in 1948 and started as a bicycle auxiliary engine manufacturer. Later, it forrayed into automobile production and expanded into the company, which is currently listed on TSE as one of the biggest Japanese automobile companies. Over the last four to five years, the financials of the company have perfectly reflected its growth, indicators of which are as follows-
Sales of the company
As of FY2024, the company’s sales touched 20428.8 trillion yen. The increase in sales volume, fueled by strong demand for hybrid (HEV) models in North America and motorcycles in India and Brazil, directly contributed to the subsequent growth in profit.
Operating Profit:
In addition, Honda achieved record-high profits for the fiscal year ending 31 March 2024, reporting an operating income of 1,381.9 billion yen and a net income of 1,107.1 billion yen. This marks a significant increase, with operating income rising by 601.2 billion yen and net income up by 455.7 billion yen compared to the fiscal year ending 31 March 2023.
Effect On Honda Motor Company’s Share Price Trend:
The Honda Motors Company is listed on the Tokyo Stock Exchange. The share price has shown a slight downward trend in the last week and fluctuated between 1240 Yen and 1370 Yen over the past month. However, the recent buyback announcement caused a surge of around 16% during the initial market hours. On the same day, a subsequent increase in the share price of the Indian company Honda India Power Products Ltd. was also noticed.
Honda India’s share price trend has been downward for the past month, resulting in a negative return of 1.26%. However, the announcement and the subsequent increase in the Japanese counterpart caused the company’s share price to increase by around 2%.
Bottomline:
The $7 billion buyback will likely increase Honda’s earnings per share (EPS) by reducing outstanding shares, which could also affect profit figures. It signals strong cash reserves and investor confidence, contributing to a 16% surge in stock price.
While the buyback uses a portion of Honda’s cash reserves, it generally supports short-term growth by boosting stock value, which could help the company in future investments, especially as it navigates its merger plans and pushes into the EV market. However, it is always advised to wait for decisive trends and take your investment decisions accordingly when dealing with shares showing sudden price movements like this one.
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FAQs
How does buyback affect a company’s share price?
A company’s share price usually rises when it buys back its shares, as it reduces the number of outstanding shares, boosting earnings per share (EPS) and signaling confidence in its financial health.
What is Honda India Power Products Limited’s share price?
For Honda India Power Products Limited, the share price as of 24th December 2024 is Rs.2916.70.
Did Nissan’s share price also increase after the news of mergers?
Yes, Nissan’s share price increased significantly following reports of merger talks with Honda. As of 18th December 2024, Nissan’s shares surged by 23.7%, marking the stock’s highest gain in years.
I’m Archana R. Chettiar, an experienced content creator with
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