FOR A David in a market of Goliaths, Eicher manages to attract a great deal of respect both from its domestic and global rivals. It’s valuation luck held out when Tafe bought its tractor business for Rs 310 crore two years ago. And although the exact valuation of the 8% that Volvo is picking up in Eicher Motors isn’t confirmed, the buzz is that the premium is fairly decent.
Analysts say part of the reason why Eicher attracts good valuations is because of its culture and DNA and its decent fundamentals. “The company is professionally run and has a positive image,” says a senior auto industry source. And, he says, Eicher’s crucial, if niche, position in every market it operates in (tractors before the sale to Tafe, lifestyle motorcycles and commercial vehicles) helps it attract good premia. Eicher Motors shares, which hit a high of Rs 599 ahead of the announcement, fell 17% to close at Rs 477 on the Bombay Stock Exchange. Said an analyst from a Mumbai-based brokerage, “The market was hoping Volvo would buy a majority stake, triggering an open offer.”
The Swedish truck major has been on the look out to expand its base in India, either organically or through an acquisition. “This became even more critical after its acquisition of Japan’s Nissan Diesel early this year. This strategic alliance with Eicher seem the right fit for Volvo’s India strategy,” said an auto analyst with ASK. Volvo will be able to take advantage of the low-cost manufacturing in India.
Eicher CEO Siddhartha Lal is fairly clear about what he wants from the alliance with Volvo. “Eicher is number 3 in the commercial vehicle market and we are strong in light and medium duty vehicles,” he said. But the real moolah lies in the medium and heavy segment which is worth Rs 30,000 crore. That’s where Tata Motors and Ashok Leyland rule and Eicher needed big MNC muscle to counter the local market leaders.
For Eicher, the Volvo tie-up is both about tech opportunity and export exposure. “The Eicher brand will focus on emerging country-specific products,” he said. “We’ve got a good set of products which we can enhance with aggregates and technology from Volvo. And we can use Volvo’s footprint in 180 markets to sell Eicher products,” he explained. Analysts do not expect this latest alliance to immediately impact the CV market. “With so many CV players entering the market, Volvo’s success will depend on its technology, products and pricing,” says a Mumbaibased analyst.
Both Volvo and Eicher currently enjoy 6% marketshare but at different ends of the market. Volvo is a high-end player while Eicher is strong in local-specific light products