Volvo, Eicher Motors tie-up’s ambit may be wider than truck distribution
Business Line: May 17,2008
Bangalore, May 16 The proposed joint venture between AB Volvo and Eicher Motors might turn out to be a much closer alliance than its current stated purpose of only having a truck distribution and after-sales network.
The proposal, according to sources close to the development, could encompass much more than the distribution network itself as the total investment by AB Volvo into the venture is $350 million, which includes Volvo’s Indian truck service and dealer network valued at $75 million.
Both the companies are expected to sign a definitive agreement for this purpose towards the end of the month, sources said. In the proposed joint venture, AB Volvo will hold 45.6 per cent stake while Eicher Motors will have the rest.
The Foreign Investment Promotion Board (FIPB) on Friday cleared a proposal by AB Volvo to pick up 8.1 per cent stake in Eicher Motors for $30 million. It also referred the proposal which involves a total investment of $350 million to the Cabinet Committee of Economic Affairs (CCEA) as any proposal which involves an investment of over Rs 600 crore is referred to the committee.
Volume & value
AB Volvo spokesperson, Mr Marten Wikforss, told Business Line that some of the trucks manufactured internationally by the company may not be suited for the Indian market and the proposed joint venture will distribute trucks which cater both to the volume segment as well as those which are value driven. The proposed joint venture will have exclusive distribution rights in India for all present and future trucks of AB Volvo.
An automobile analyst with Angel Broking, Ms Vaishali Jajoo, said that in the short term, the joint venture may not impact players like Ashok Leyland and Tata Motors. “They may not be a threat at least for another two-three years,” Ms Jajoo said.
Tapping the North
She said Volvo will be able to dip into the wide network that Eicher Motors provides, especially in the north, to expand its operations in the country. “Volvo’s operations in India are still at a nascent stage. But with this joint venture, it will be able to break into the northern market,” Ms Jajoo said.
Eicher Motors shares closed at Rs 321.75 on Friday, about 7.64 per cent higher than the previous closing price.
