AB Volvo signs out of Eicher investment, VECV intact
AB Volvo, truck manufactures in Europe will be selling its stock of 3.7% in Eicher Motors. This announcement was made on Wednesday, after trading hours. Thus, Eicher ended Thursday’s trading session on BSE at 17,358, down 4.6%; one of their worst single day declines in recent history.
The Swedish automaker has said that the entire block of shares will be sold, the value of which could be about INR 1,800 crore ($286 million) at Wednesday’s trade prices wherein Eicher shares closed at INR 18,209 per share.
AB Volvo Eicher stock was purchased in 2008 giving the Swedish company a separate truck and bus making in a joint venture with Eicher in India. This new development will have no effect on their joint venture – VECV – Volvo Eicher Commercial Vehicles.
It was earlier in March that Volvo sold 4.6% stake and now plans on selling the balance, which according to experts is for two reasons. Under the IFRS account standard indirect stake in Eicher could not be treated as a joint venture due to which Volvo decided to withdraw, while the profit growth for Volvo over the past few years has not been upto expectations which could also be the reason for Volvo to pull out support. It was noted that in the past five financial years, profit growth hovered between 1.9% and 5.7% only.
On cost cutting spree, AB Volvo, besides selling its 1 million shares in Eicher Motors will also be resorting to major staff cuts and has also sold off non-core assets of the company over the past few years. This sale includes its Aerospace Division which was sold in 2012.