Leyland buys Prague truck unit

Acquisition part of truckmaker's plan for eastern Europe.

To increase its presence in the overseas market, Ashok Leyland, the second largest truckmaker in India, has acquired the loss making truck business unit of Avia of Prague.

"Avia is a part of our inorganic growth plan and is a significant step in securing a beachhead in the European Union and the eastern European makets. The acquisition will also give us a modern, international vehicle for our light and medium commercial vehicle range of trucks for India and other export markets," said R Seshasayee, managing director of Ashok Leyland in a press statement.

According to the company's note to the stock exchange, the acquisition will be through a Special Purpose Vehicle (SPV) and will be subject to fulfillment of various conditions and further subject to the corporate and statutory approvals from both sides. The acquisition is expected to be completed before end of August 2006.

Sridharan, executive director, Ashok Leyland, said there was a portion of the $100 million (abut Rs 450 crore) foreign currency convertible raised in April 2004 and the remaining would be funded through internal accruals and borrowing from financial institutions from India.

He, however, declined to disclose the details of investment to be made by the company. Last month, the board of directors had given their nod to raise $150 million (about Rs 675 crore) for the expansion of its capacity.

The strategic location of Avia also opens up the possibilities of using its facilities as an assembly and marketing base for the company's future products.

On Indian truckmakers plan for Avia, Seshasayee said that the present volume of sales from Avia was limited, there was a good potential to scale up, through new markets such as the West Asia, South East Asia, Russia and Ukraine and by consolidating and strengthening existing dealership arrangements in Europe. The planned scale up of Avia operations will absorb the current staff strength of around 275.

He also pointed out that there was potential to save material costs through component sourcing to low cost countries. Sridharan mentioned that there were synergies between the two companies as the Indian company can export engine and gear boxes to Avia.

"It is a very compelling fit. Ashok Leyland will gain a modern truck, design capabilities and access to the European market and Avia truck business unit will gain a strategic parent resulting in significant savings in purchasing and access to Ashok Leyland's existing markets. The strategic rationale and the combined capabilities under Ashok Leyland ownership have the potential to make Avia truck a global player" said Michael Saran, chairman of Avia.