Volvo looks to sell remaining 3.71% stake in Eicher

Mumbai/New Delhi: Swedish manufacturing company AB Volvo is looking to sell its remaining 3.71% stake in Eicher Motors Ltd and monetize 1.01 million shares of the Indian company that it currently holds. Shares of Eicher Motors were trading at Rs.18,210 apiece on Wednesday.

According to a term sheet reviewed by Mint, the company will look to sell its stake in a block deal on Thursday. The shares, if sold in the range of Rs.17,190-18,190 apiece, taking into account a maximum discount of 5.5%, could fetch Volvo as much as Rs.1,820 crore.

In May 2008, AB Volvo and Eicher entered into a joint-venture agreement to set up Volvo Eicher Commercial Vehicles (VECV). As part of the transaction, in addition to acquiring 45.6% of the shareholding of VECV, Volvo had also acquired 2.27 million shares of Eicher, representing 8.4% of the equity capital of the company.

In March, Volvo sold 4.69% stake in Eicher for about Rs.1,900 crore. Since the commencement of VECV in 2008, the two companies had invested Rs.1,800 crore in the venture. VECV will continue to exist with Eicher as the majority stakeholder.

In response to a detailed questionnaire, Eicher said it “does not wish to comment on any speculative news stories on Volvo”.

“At VECV, there is no change in the functioning of the joint venture which is governed by an equal representation board and agreement. VECV continues on track and is committed to driving modernisation in the Indian trucking industry. All investments and business plans at VECV continue as planned,” the company said.

VECV’s business includes the complete range of Eicher trucks and buses, VE Powertrain, Eicher’s components and engineering design services businesses as well as the sales and distribution business of Volvo trucks within India.

A Volvo India spokesperson declined to comment on the story.

An analyst said Volvo has rightly timed its move to sell its stake as the stock had multiplied several times over the years—from the Rs.800 level to Rs.18,000 in just seven years.

“It is a good opportunity for them to monetize and use the proceeds for expansion in other markets,” said Dhananjay Sinha, head of research at Emkay Global Financial Services Ltd.

According to another analyst who requested anonymity, while VECV may have incurred losses, AB Volvo will make a lot of money by selling its stake.

“The JV has consumed capital but Volvo’s returns will be coming from selling its stake in Eicher,” he said.

This analyst added that Volvo paid around Rs.160 crore in 2008 to pick up the stake in Eicher.