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Home > Business > Business Headline > Report

Eicher Motors' CEO on the Volvo deal

Suveen K Sinha & Surajeet Das Gupta in New Delhi | December 11, 2007 11:41 IST

The story of the Eicher group, promoted by the Delhi-based Lal family, may some day make a case study, not least for its agility in coping with the changing reality of doing business in India.

In the 1990s, it succumbed to the temptation of diversification. As fellow north Indian families such as the Modis were getting into a range of businesses mainly through joint ventures with overseas companies, Eicher tried to keep in step.

It tied up with Volkswagen for making passenger cars in India, but that did not materialise because the German mass car maker grew cold feet.

The businesses it did get into were consultancy, leather and garments, and maps.

This century, though, it has tried to grow within focused segments. Under a plan devised three years ago (see accompanying Q&A), it sold its tractor business to South India-based Tafe for Rs 310 crore (Rs 3.10 billion) in 2005. It has also pulled out of leather and garments and consultancy.

On Monday, Eicher Motors [Get Quote] signed a letter of intent with Sweden's Volvo AB, under which the two will have equal control over a joint venture that will house all of Eicher Motors' commercial vehicles, components and engineering businesses.

Put simply, Eicher is ceding half the control over these businesses.

According to Siddhartha Lal, chief executive of Eicher Motors and promoter Vikram Lal's son, Eicher is not shrinking, it is merely growing bigger in its focus area of commercial vehicles. To grow bigger in this business, it needed a partner like Volvo for technology and distribution.

According to a senior executive of the group, who did not want to be identified, one has to take decisions as one moves forward.

For instance, Eicher a while ago wanted to acquire Punjab Tractors [Get Quote], a market leader. However, it failed to get majority equity in the company and decided to drop out.

Eicher Motors' CEO on the Volvo deal

Siddhartha Lal, the chief executive officer and managing director of Eicher Motors, says that the JV announcement is part of a three-year-old vision to have a bigger play in a smaller playground. Excerpts from a conversation with Suveen K Sinha & Surajeet Das Gupta.

Why did you go for this deal?

We made a good entry into the heavy vehicles market. But we needed to scale up. Eicher wants to be a full-range commercial vehicles player. We will be able to use Volvo's technology and sales and distribution network.

The Eicher management will continue in the joint venture. The most important thing is that with Volvo entering, no one's holding gets diluted. Secondly, the step-down company will be a subsidiary of Eicher Motors.

What happens to Eicher Motors?

Eicher Motors' commercial vehicles, components and engineering businesses will be transferred to the joint venture. We will be transferring all assets.  The largest thing that remains with Eicher Motors is the 54.4 per cent equity held in the joint venture.

What will be left with Eicher?

Operationally, there will be Royal Enfield� and other interesting assets.

Which are the interesting assets?

The capital gains bonds that we got from selling the tractor business.

For future capital infusion in the joint venture, will you bring in your share to keep your equity holding intact?

The joint venture is suitably capitalised as of the medium term. In the future, we will see.

Why Volvo?

We were in discussion with various potential partners. For the long term, Volvo is really the best partner.

Volvo, with its technology and financial muscle, may go on to dominate the joint venture in future. It already controls 50 per cent equity. How wrong is it to say that Eicher, which has already sold its tractor business, is shrinking?

I would say it is wrong. Three years ago, we had a clear plan to focus on the commercial vehicles segment. That was part of the reason to exit tractors. It is a focused play. We have zeroed in on a segment of limitless possibilities. Sometimes, you have to shed a few things to get more.

Innovation is another important area. At my staff meeting, I have told each employee to come up with one creative idea everyday. All good ideas will be implemented.

How will you improve the marketing initiative?

I am revamping our loyalty programme. Besides that, there will be more collaboration with international carriers. I am also exploring tie-ups with exclusive high-end credit card service providers for marketing partnerships.


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