Round-II with Volvo

It was two years back,in July 2008,that Swedish truck and bus maker Volvo teamed up with the Delhi-based Eicher..

It was two years back,in July 2008,that Swedish truck and bus maker Volvo teamed up with the Delhi-based Eicher Motors. The objective was two-fold: distribute Volvo trucks in India and upgrade the Eicher range of trucks and buses with Volvo8217;s technology. Together,the companies developed an all-new range of Eicher heavy-duty trucksthe VE Series 16-40 tonne. Last week,the partners went a step further; Eicher will now make Volvo engines for medium-duty commercial vehicles at its plant in Pithampur,Madhya Pradesh. The combined investment into the 50:50 joint venture,VE Commercial Vehicles Limited VECV,to manufacture the engines will be around Rs 300 crore.

The Rs 2,939-crore Eicher couldnt have hoped for more. While the company occupies the number two slot in the light and medium-duty CV segment with a share of 30,in the heavy-duty CV segment,it is not a contender with a miniscule share of 2 between itself and Volvo.

But now,the story could change. Armed with Volvos technology,Eicher is looking to sell more trucks in the home market. Siddhartha Lal,managing director,is hoping to raise the companys share in the heavy-duty market to 15 by 2015. Lal estimates that the CV market in India will grow at GDP plus 2-3. As for the medium-duty CV segment,Lal is hoping to grow the share beyond 30. We get an enormous advantage by fitting the Eicher trucks with Volvo engines because we will be ahead of the competition in terms of technology. We will be prepared for Euro-V and Euro-VI emission norms.

Lal explains that the capacity for making 85,000 engines a year will bring in scale and,consequently,cost benefits. The Pithampur plant will produce the new medium-duty platform engines of 5 and 8-litre engines in the configurations from 215 to 350 horsepower. These engines will meet emission norms of Japanese PNLT post-new long-term,the US EPS 2010 and Euro-III,IV,V and VI.

According to Lal,Eicher has all along been a premium player in the Indian market,pricing its vehicles about 3-5 higher than the competition. We may continue with our premium positioning,he says.

Eicher is also hoping to grow in the overseas markets. Although,Volvo hasnt specified its sourcing requirement from Pithampur,Lal expects it would be in the region of 30,000 units for the European market. Were expecting that our exports,which currently account for sub-10 of our sales,could go up to about 15 in the next five years, Lal says,adding that the new engine facility should be up and running by 2012. Clearly,Volvo expects to derive a huge cost advantage by making engines in India.

Currently,Eicher exports to around 30 countries,including Middle-East countries. Over the next few years,Eicher plans to leverage the Volvo distribution in overseas markets to sell its medium-duty vehicles. Lal believes the new engine facility would help Eicher integrate further with Volvo and establish itself as an important supplier to the Swedish group.

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Analysts point out that Eicher can use the cash on its books to fund the new facility. At the end of December 2009,the company had approximately Rs 1,100 crore of cash with it. The company has an ongoing investment programme,estimated at Rs 500 crore,to upgrade and expand the facilities at Pithampur,where its raising the capacity by 25 from 4,000 units to 5,000 units a month by 2011.

Volvo,for its part,appears to be eager to expand its presence in emerging markets,including India. Currently,Asia accounts for about 25 of its revenues,up from 5 ten years back. Going ahead,the company could source more components from India. Volvo is sourcing castings from India and wants to source 80 of components for the Indian market locally. The venture with Eicher is part of its strategy to grow inorganically in the Asian markets like China,India and Japan.

As for VECV, its aiming to be a multi-brand company that will cater to brands like Eicher,Volvo and other brands of Volvo like Renault Trucks and Mack Trucks. Clearly,Eicher has chalked out a route for itself. How smooth that route,only time will tell.

Distance covered

1982: Eicher Motors was established to manufacture commercial vehicles in the capacity range of 5-25 tonne

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1986: Firm entered into a technical and financial collaboration with Mitsubishi Motor Corporation of Japan to make the Canter range of vehicles

1989: Eicher Tractor Corporation of India Ltd incorporated. Made first indigenously built tractor at its Faridabad factory

1994: In March,the group acquired Enfield India Company,and renamed it as as Royal Enfield Motors Ltd

1992: Eicher Engineering Components or EEC came into existence in a take-over from gear maker Ramon amp; Demm,Thane

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2005: Eicher Motors has disinvested the businesses of Tractors amp; Engines to TAFE Motors and Tractors Ltd TMTL

2008: Volvo group and Eicher formed a 50:50 JV,called VE Commercial Vehicles Ltd VECV,to make the complete range of Eicher trucks and buses as well as sales of Volvo trucks

2010: VECV launches the new range of VE series trucks 16-40 tonne. In June,unveiled plans to set up an engine facility