MUMBAI: Shares of Eicher Motors fell sharply on Monday soon after it announced a joint venture with AB Volvo. The fall is attributed to a lower valuation of the step-down subsidiary at $856 million instead of $1 billion as reported earlier in the media.
The Eicher Motors share closed at Rs 477.30, down 12.49 per cent or Rs 68.15 on volume of 10,52,119 shares. It touched 52-week high of Rs 599 before falling to a low of Rs 442.30.
“The joint venture, which was earlier rumoured to be valued around $1 billion, actually turned out to be $856 million. The JV was valued aggressively by Volvo. However, comparing the valuations with its peers, the market has fairly valued Eicher Motors at Rs 470-480. Hence, as soon as the announcement was made the stock corrected sharply,” said an analyst with a local brokerage.
Eicher Motors will transfer to the new company its commercial vehicle business along with related components and design service businesses at an enterprise value of $506 million. Volvo will invest $350 million, including $275 million in cash and its Indian truck dealer and service network valued at $75 million.
Eicher Motors will hold 54.4 per cent and AB Volvo 45.6 per cent in the JV.
The venture will be jointly managed by Eicher Motors on equal shared-control basis. Volvo will also acquire 8.1 per cent in Eicher Motors from its promoters.
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