Eicher, Volvo JV to adopt dual brand strategy

The JV called Volvo Eicher Commercial Vehicles (VECL) will use the Eicher brand for light and medium (LM) commercial vehicle segment, while the Volvo brand will be targeted at the the premium heavy commercial vehicle (HCV) segment in the country. Eicher Motor's current portfolio also consists of heavy vehicles (50 tonnes and above) which they will continue to sell.

Under the VECL framework, the engineering design services and the components operations of Eicher Motors will also be brought under the umbrella of VECL. While Volvo's luxury bus business will be out of the JV purview and the servicing of the Swedish major's buses will be handled out of VECL.

Eicher Goodearth Investment (EGIL) is the holding company of EML that holds a stake of about 58.2 per cent in EML. The holding company will transfer the commercial vehicle business of EML to VECL at a value of Rs 202 crore.

Volvo will contribute Rs 1,082 crore in the joint venture company and will also transfer its Indian truck business to VECL. Volvo's stake in VECL will be 45.6 per cent while EML will hold the balance 54.4 per cent.

Volvo will take an 8.1 per cent stake in EML for Rs 157.40 crore, making its total stake in the Eicher group at 50 per cent. While the JV will have exclusive distribution rights in the country for all of Volvo's truck businesses, it also stipulates a non-compete clause and a non-compete fee.

EML and its promoters have agreed not to compete with the JV by launching new bus and truck businesses in the future. For that privilege Volvo will pay a non-compete fee of Rs 39 crore each to EML and its promoters.

In addition, the holding company of Eicher Motors, EGIL, proposes a buyback of shares from the public in the same ratio and in the same price as that were sold to Volvo in the creation of the JV.

If approved by Securities and Exchange Board of India (SEBI), the buyback would be at Rs 691.68 per share equivalent to 13.12 per cent of the public holding in EML.