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Jayanta Mallick

Kolkata, Dec. 10 Eicher Motors tumbled on the market after the announcement of its proposed joint venture with Volvo as Dalal Street had factored in a better price of company’s total business (sans motor cycles). The stock closed down 12.5 per cent at Rs 477 after touching an intra-day low of Rs 442.

Volvo stock also had plunged in the negative territory in early trades on the Stockholm Stock Exchange but recovered later and was trading in the green in the closing hour. It finished up more than 1 per cent.

According to the brokers and dealers, Eicher was being accumulated in recent weeks on expectation of a higher valuation. A month ago, the stock was trading at around Rs 400.

The valuation of the complete truck, bus, component and engineering services business was below market expectation, hence the correction, said an analyst with a foreign brokerage.

For a 45.6 per cent stake in the joint venture, Volvo is paying $ 350-275 million in cash and transferring its Indian dealer and service network worth $75 million.

It would give Volvo better hold on the Indian truck market, fourth largest in the world. Eicher is the third largest player in the truck sales and having a 27 per cent market share in the light and medium segments. It is also the third largest player in heavy weight segment.

“It would help Volvo more than Eicher,” said an industry analyst pointing out that it would provide a long-term insurance against expected deceleration its main market – western Europe and North America. Asia is Volvo’s second largest market. In terms of component outsourcing also, the joint venture would provide a higher value proposition for the European vehicle maker, analysts said.

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