Stockholm: World number two truck maker Volvo said on 10 December it had signed a letter of intent to set up a joint venture with Eicher Motors Ltd to boost its position in the fast-growing Indian market.
Volvo said in a statement it would acquire an 8.1% stake in Eicher Motors, India’s third-biggest truck maker, to give it a direct and indirect ownership of 50% in the joint venture.
Under the deal, the joint venture would include Eicher’s entire truck and bus operations, while Volvo would add its sales operations for trucks in India, valued by the firm at $75 million, and $275 million in cash.
The cash contribution to the venture meant it would be able to “initiate an aggressive focus” on the heavy-duty truck segment, Volvo’s flagship product segment, the firm said.
There has been some speculation in recent quarters of a potential deal by Volvo to expand its footprint in the Indian market, not least after it boosted its presence in Asia with the acquisition of Japan’s Nissan Diesel early this year.
“Already today, India is one of the world’s largest truck markets, and projections indicate continued very strong growth,” Volvo Chief Executive Leif Johansson said in the statement.
“Major investments in improved infrastructure and stricter rules for truck weights will strongly drive demand for heavy trucks, which makes the market particularly attractive for the Volvo Group.”
Production at the joint venture would have its production focused mainly to Eicher Motors’ existing plant in Pithampur in central India and have about 2,300 employees, Volvo said.
Talks would now begin on a final agreement, which would need the approval of government authorities and Eicher shareholders, Volvo said, adding the deal was seen being completed before mid-year 2008.
Volvo said the deal would have only a marginal impact on group profitability, earnings per share and net financial position in the short term.