Volvo invests $350 mln in an India truck JV

Volvo, the world's No.2 truck maker, said on Monday it planned to invest $350 million to expand in the fast-growing Indian market through a joint venture with Eicher Motors.

Global truck makers are keen for a larger share of a market that is the world's fifth-biggest and is forecast to expand with improving infrastructure and new emission and safety rules.

Volvo will buy 8.1 percent in Eicher Motors, India's third-biggest truck maker, giving it 50 percent in the venture, which has not yet been named and which will take on market leaders Tata Motors and Ashok Leyland.

"This is doubtless a strategic position in the Indian market," Nordea analyst Johan Trocme said. "It's not cheap, but I think investors will let that pass today, considering how exciting the investment is."

Nissan Motor Co has firmed up ventures with Ashok Leyland for light trucks, engines and transmissions. Daimler, which recently began assembling some Actros trucks locally, is scheduled to announce a venture partner shortly.

Volvo will add its Indian truck sales business, valued at $75 million, and $275 million in cash to the venture "What you really have to look at is the combination of buying into one of the world's quickest growing and largest markets," Volvo CEO Leif Johansson told a news conference.

"We came to the conclusion that the price is well justified given the growth opportunities and looking at the alternative costs and options that were there from our point of view."

Eicher shares, which had hit a life high of 599 rupees ahead of the news on Monday, valuing the company at $427 million, fell as much as 19 percent following the announcement.

"Eicher shareholders were hoping Volvo would buy a bigger stake, which would have triggered an open offer for shares," said Ashutosh Goel, auto analyst at Edelweiss Securities.

"The deal makes good sense, but expectations were higher."

Volvo said the agreement, expected to be completed before the middle of next year, would have only a marginal impact on its results in the short term. Volvo shares were up 1.5 percent at 118.5 crowns by 1038 GMT.

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Eicher's commercial vehicle and components business will be transferred to the venture at an enterprise value of $506 million, and the two firms will combine their service and dealer networks for trucks in India.

There has been speculation recently of a deal by Volvo to expand its footprint in India, not least after it boosted its presence in Asia with the acquisition of Japan's Nissan Diesel early this year.

Volvo is also in talks with Dongfeng Motor Group Co to replace Nissan Motor as the Chinese truck maker's partner in making heavy and medium-duty commercial vehicles, but talks have been difficult and Johansson would not set out a time frame for reaching an agreement.

"If we can find the right set of circumstances we will make a deal. Otherwise we won't," Johansson said.

Sales of trucks in India have risen by a fifth on average in the last three years, and the need to move steel and cement to build roads and ports has boosted demand for heavy trucks.

Eicher, which makes trucks in the 5-25 tonne range at its central Indian plant, has said it would launch at least three heavy trucks by March. It is raising its annual truck capacity to more than 48,000 units from 38,000 currently.

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