Eicher Motors: Unequal deal

Volvo has bought 45.6% stake in Eicher's subsidiary, rather than taking the direct route

Eicher Motors has given its commercial vehicle (CV) business a fresh lease of life by partnering with truck maker Volvo.

Volvo has bought the 45.6 per cent stake in a subsidiary into which Eicher will transfer the CV and related component business. But valuations could suffer as a result of the holding company discount.

The shareholders of Eicher Motors will not get the proper value of the CV business even though the accounts of the subsidiary will be consolidated with those of the parent company.

Ideally, Volvo should have purchased direct stake in the parent company. The resultant open offer would have given the shareholders an option to sell.

Not surprisingly, the stock of Eicher Motors has declined 14 per cent to Rs 468 since the announcement of the JV.

The deal values Eicher's 54 per cent stake in the JV at $418 million or Rs 595 a share.

Eicher will continue to own the motorcycle business which contributes about 10 per cent to sales and just about breaks even.

It has remained a small player in the CV space, with a share of about three per cent. It will benefit from the infusion of cash, amounting to $275 million and technology from Volvo.

However, it will be some time before Eicher-Volvo gains market share as the CV market itself is going through difficult times.

While the deal is a great one for the promoters, it will be a long time before shareholders make money.

Maytas Infra: Going strong

The recently listed Maytas Infra announced on Monday that it has bagged a Rs 233-crore order from Vedanta Alumina to develop an integrated township.

This single order accounts for more than half of its buildings and structures order book at the time of the IPO. Moreover, the company has forayed into UAE by setting up a branch office on Tuesday.

Maytas, a mid-cap construction company focussed on roads and irrigation projects, is aggressively looking at areas such as civil construction, power, industrial structures, oil and gas, ports and airport development.

The Vedanta project will have a total built-up area of 14 lakh sq ft and will be completed in 18 months. The company is also a 37 per cent shareholder in a consortium to build and operate airports at Gulbarga and Shimoga.

Maytas is growing fast, with its order book having gone up from Rs 800 crore in FY05 to over Rs 4,000 crore, executable over the next 30 months.

However, Maytas is not cheap. At the current market price of Rs 925, it is trading at about 57 times its fully diluted FY08 estimated earnings. However, analysts believe that on the back of a strong order book and healthy industry outlook, the stock is likely to trade at high multiples.

With contributions from Shobhana Subramanian and Jitendra Kumar Gupta