Eicher to transfer auto business by July

To transfer tractors, motorcycles, engines and gears business to Eicher Motors.

The restructuring is aimed at improving operational efficiencies through greater synergy among the group's automobile business.

The revamp will also involve the merger of Malbros Investments Ltd, a wholly owned subsidiary of the Rs 650 crore Eicher Ltd, with the residual Eicher Ltd after the transfer. The whole process will be effective from April 1, 2003.

Eicher group chairman and chief executive S Sandilya said the restructuring is being made to concentrate all the entities into the Rs 700 crore Eicher Motors Ltd to use the financial strength as a combined enterprise and cash in on the growth offered by various automobile businesses.

"Size matters. Once we have a combined entity, it becomes easier to negotiate with vendors for parts and institutions to get the best interest rates instead of having separate entities. Also, the marketing and distribution costs will come down and there will be tax savings," Sandilya said.

The restructuring will also help to reduce the risk arising from a downturn in a particular business segment by upturn in others, he added.

He said the approval of the Delhi High Court, after considering the views of all concerned parties such as shareholders, secured and unsecured creditors, is expected by June-July 2004.

As part of the restructuring, additional shares will be issued in Eicher Ltd for the demerged undertaking in the ratio of 2 equity shares of Eicher Motors for every 5 equity shares of Eicher Ltd.

Sandilya said Eicher Motors, which makes light and heavy trucks, will continue to record higher growth in volumes over the average industry sales. During 2003-04, the company posted a 25 per cent growth in sales at 15,880 vehicles.

This was helped by its foray into the heavy truck segment with the Jumbo 20.16 model.

Eicher Motors has commenced trial production of its first tractor trailer, 30:25 Galaxy, which is expected to further push up volumes this year, he said.

According to Sandilya, higher agricultural production, low interest rates, construction of national highways and replacement demand is driving demand for commercial vehicles.

The tractor business of Eicher Tractors has also witnessed a growth during the last financial year as abundant rains and better agricultural production improved sentiments. This has also led to correction of unsold inventories. "This year should also be good for tractors," Sandilya said.

He said factors such as the rise in steel prices and appreciation of the rupee over the dollar has increased production costs, which could not be fully transferred to customers.

"Margins have come down for all companies. There are cost pressures. But, the companies have been able to increase profits through higher volumes," he added. The motorcycle business under Royal Enfield Motors has also been witnessing a growth during 2003-04, according to Sandilya.