Mumbai: Commercial vehicles maker Force Motors Ltd has decided to sell its 50% stake in MAN Force Trucks Pvt. Ltd to its German joint venture (JV) partner and quit the heavy duty trucks segment.
Force Motors will sell nearly 56 million equity shares in MAN Force Trucks to MAN Truck and Bus AG for €150 million (Rs 1,050.54 crore), subject to necessary approvals, it said in a statement to BSE Ltd.
The Pune-based company had initially held a 70% stake in the joint venture, formed in 2003, but later became an equal partner of MAN Trucks.
“We concluded that they should be allowed to take the full lead,” Force Motors chairman Abhay Firodia said.
Force Motors will continue to supply parts and some critical aggregates to MAN Trucks, he said.
“It’s another step in enhancing our presence in the growing Indian market. We now have a good standing here,” a MAN Truck and Bus spokesperson said on the phone from Munich, Germany.
The joint venture has not been performing optimally, Mint had reported on 15 September.
MAN Force’s plant in Pithampur, Madhya Pradesh, which makes heavy duty trucks, has been operating at half its capacity. The factory can produce 12,000 units a year but sells just 6,000 on average.
Nearly 200,000 heavy duty trucks are sold in the country annually, according to the Society of Indian Automobile Manufacturers, an industry lobby.
In April-October this year, 162,026 such trucks were sold in the domestic market, an expansion of 12% over the same period last year.
Firodia had earlier said Force Motors had converted its commercial vehicles business into the joint venture with MAN Trucks expecting large export orders, but that never happened.
The heavy duty commercial vehicles segment in India is dominated by Tata Motors Ltd and Ashok Leyland Ltd.
Companies such as Mahindra Navistar Automotive Pvt. Ltd, Volvo Eicher Commercial Vehicles Ltd and Daimler Commercial Vehicles Pvt. Ltd have also entered the market lately. The latest to join this space is the commercial vehicle maker from China, Beiqi Foton Motor Co. Ltd, which is setting up a manufacturing unit in Chakan, near Pune.
As competition intensifies, it would have been difficult for the joint venture to survive in its current form, said V.G. Ramakrishan, senior director, automotive and transportation at Frost and Sullivan.
“They (Force Motors and MAN Trucks) realized the JV was going nowhere and neither of them was able to add any value. They had to take a decision on how they want to take things forward,” he said.
Shares of Force Motors closed at Rs 501 apiece, up 0.2% on the Bombay Stock Exchange, while the benchmark Sensex index closed at 15,946.10 points, down 2.6%.
The valuations “seem to be more rational given the company was valued at around Rs 2,000 crore in 2008, when the JV was realigned,” said the head of mergers and acquisitions at a domestic investment bank, asking not to be identified. “Indian promoters are beginning to be more realistic with valuations and you will see many transactions going through at lower valuations in near future.”
Sneha Shah contributed to this story.