News: Volvo looks to zoom on Indian growth highway
(TNN 22/04/2006) Ahmedabad/New Delhi - Is Swedish truck major Volvo looking at increasing its Indian footprint with a stake in India’s second largest commercial vehicle manufacturer Ashok Leyland?
According to sources in the financial circuit, Volvo, whose Indian subsidiary is called Volvo India, is reportedly negotiating the deal, though no concrete decision has emerged yet. However, when contacted, Dheeraj Hinduja, vice-chairman, Ashok Leyland, denied the development. “To my knowledge this is not correct,” he told ET. Ashok Leyland’s MD, R Seshasayee, refused to comment as did Volvo officials. AB Volvo’s vice-president of media relations, Marten Wikforss, told ET, “We do not comment on speculation.”
If the story is indeed true and if Volvo does manage to push this deal through, it would tie in with its new strategy of aggressive organic and inorganic growth in India and China. The company has indicated in the recent past that it is open to the idea of M&As in both markets. In an earlier interview with ET, worldwide group CEO, Leif Johansson, had said, “We don’t have any regulatory limits in India; it’s a matter of finding the right set of circumstances, the right context and the right kind of financial structure to make (an acquisition) happen. If yes, we would be interested.”
The reasoning, he had explained, was simply because there are still opportunities for inorganic growth in India and China. “We are number one in trucks in Europe and number two in the US,” Mr Johansson had said. “We cannot make acquisitions on heavy duty trucks in these markets due to regulatory reasons. Elsewhere, especially in Asia, there are no such barriers to growth, organically or otherwise.”
The Hinduja group has also been on the look out for inorganic growth in the auto industry. In an earlier interview with ET, Mr Hinduja had indicated his interest in acquisition opportunities in commercial vehicles, components and engineering design. “The CV industry has consolidated significantly so there are limited acquisition opportunities,” he had said.
Currently, the promoters who comprise primarily the non-resident Hindujas, hold 49.59% stake in Ashok Leyland. It remains to be ascertained how much stake Volvo would acquire in the company. At Rs 42.35, the price at which the Ashok Leyland stock closed on Thursday, the promoters’ holding (owned through LRLHI) is valued at around Rs 2,500 crore.
As per the company’s documents, the entire promoter holding is in the form of foreign investment (NRI investment). Among the other big shareholders in the company is Life Insurance Company (LIC) of India with 9.8%. The public holding is 11.36%. Volvo currently makes trucks, tippers, tractor-trailors, bus chassis and construction equipment in its Indian subsidiary based out of Bangalore.
As the current manufacturing line is focused on premium products — which have a low offtake in India — production is limited to 1,200 vehicles a year on a single-shift basis. The demand for these products, however, is growing.
The Indian economy is currently riding a domestic demand-led boom. That is also bringing along good road infrastructure and the need for better-equipped vehicles. However, if Volvo wants to grab a bigger pie of the ongoing bustling activities in India, a stake in Ashok Leyland, which is the second biggest CV maker after the Tatas, would come in handy. Ashok Leyland’s annual turnover exceeds $1bn. It has a production capacity of 77,000 vehicles and 87,000 engines per annum.
According to sources in the financial circuit, Volvo, whose Indian subsidiary is called Volvo India, is reportedly negotiating the deal, though no concrete decision has emerged yet. However, when contacted, Dheeraj Hinduja, vice-chairman, Ashok Leyland, denied the development. “To my knowledge this is not correct,” he told ET. Ashok Leyland’s MD, R Seshasayee, refused to comment as did Volvo officials. AB Volvo’s vice-president of media relations, Marten Wikforss, told ET, “We do not comment on speculation.”
If the story is indeed true and if Volvo does manage to push this deal through, it would tie in with its new strategy of aggressive organic and inorganic growth in India and China. The company has indicated in the recent past that it is open to the idea of M&As in both markets. In an earlier interview with ET, worldwide group CEO, Leif Johansson, had said, “We don’t have any regulatory limits in India; it’s a matter of finding the right set of circumstances, the right context and the right kind of financial structure to make (an acquisition) happen. If yes, we would be interested.”
The reasoning, he had explained, was simply because there are still opportunities for inorganic growth in India and China. “We are number one in trucks in Europe and number two in the US,” Mr Johansson had said. “We cannot make acquisitions on heavy duty trucks in these markets due to regulatory reasons. Elsewhere, especially in Asia, there are no such barriers to growth, organically or otherwise.”
The Hinduja group has also been on the look out for inorganic growth in the auto industry. In an earlier interview with ET, Mr Hinduja had indicated his interest in acquisition opportunities in commercial vehicles, components and engineering design. “The CV industry has consolidated significantly so there are limited acquisition opportunities,” he had said.
Currently, the promoters who comprise primarily the non-resident Hindujas, hold 49.59% stake in Ashok Leyland. It remains to be ascertained how much stake Volvo would acquire in the company. At Rs 42.35, the price at which the Ashok Leyland stock closed on Thursday, the promoters’ holding (owned through LRLHI) is valued at around Rs 2,500 crore.
As per the company’s documents, the entire promoter holding is in the form of foreign investment (NRI investment). Among the other big shareholders in the company is Life Insurance Company (LIC) of India with 9.8%. The public holding is 11.36%. Volvo currently makes trucks, tippers, tractor-trailors, bus chassis and construction equipment in its Indian subsidiary based out of Bangalore.
As the current manufacturing line is focused on premium products — which have a low offtake in India — production is limited to 1,200 vehicles a year on a single-shift basis. The demand for these products, however, is growing.
The Indian economy is currently riding a domestic demand-led boom. That is also bringing along good road infrastructure and the need for better-equipped vehicles. However, if Volvo wants to grab a bigger pie of the ongoing bustling activities in India, a stake in Ashok Leyland, which is the second biggest CV maker after the Tatas, would come in handy. Ashok Leyland’s annual turnover exceeds $1bn. It has a production capacity of 77,000 vehicles and 87,000 engines per annum.
posted by InCar Group Press Room at 13:18
0 Comments:
Post a Comment
<< Home