VE Commercial Vehicles, a joint venture between AB Volvo and Eicher Motor Ltd (EML), has been facing tough times in the last few months with industry-wide commercial vehicle sales plummeting.

Its own sales fell by almost 70% in the December quarter of 2008, but MD & CEO Siddhartha Lal says the current quarter should be quite an improvement, with sales decline expected to be capped at 50%.

So does that mean the JV's investment and capex plans are going as per plan?

"Sales in January were better than December and I expect February to improve further so there is certainly a turnaround…(but) in the pre-merger business plan the JV had higher expectations for 2009…we thought 2009 would be a pretty good year. Now, it doesn't seem that way," Lal told DNA Money.

VECV has installed capacity to make 4,000 trucks a month on a two-shift basis, but due to subdued demand actual production in February would be just a little over 1,000 units, or only a fourth of the available capacity is being utilised.

VECV makes trucks and buses under the Eicher brand name besides selling Volvo trucks. All future Volvo truck projects would also be under the JV which already houses the component and component engineering businesses.

Lal said given the demand squeeze, all investments in capacity expansion have been frozen but those meant for after-market, spare parts, distribution etc are on track. Of the Rs 100 crore earmarked for 2008-09, only Rs 60 crore has been invested so far.

So is there no rethink on the JV?

Lal emphatically denies any delay in the JV's product rollout plans. A new heavy truck, a new city bus, a completely new platform for Light Commercial Vehicles (LCVs) which would be used to upgrade existing products and launch new ones - all these products are on schedule between now and 2010.
In buses, the company is developing a new fully built bus range called 'Skyline' besides new intercity buses.

Interestingly, though capex investments may have been frozen, VECV is sitting over cash in excess of Rs 800 crore (received at the time of JV formation).
Lal said this money is meant for investment in the CV business but the Rs 350 crore left with parent company EML could throw up interesting possibilities. About Rs 100 crore out of this would be utilised by EML to conduct a share buyback programme involving 14,08,969 shares of face value Rs 10 at Rs 691.98 per share.

"Some may also be deployed in our two-wheeler business of Royal Enfield. But for the remaining we are looking at possibilities. We don't only want to be narrow minded over putting this money in auto…yes, our core capability is auto but looking in auto and beyond…..acquisitions, JVs, new ventures everything is a possibility though nothing specific is being looked into at present," Lal said.
Sindhu Bhattacharya DNA-Daily News & Analysis Source: 3D Syndication