India’s largest commercial vehicle maker Eicher Motors (EML) has signed up a joint venture (JV) agreement with the Swedish multinational AB Volvo (Volvo) for manufacturing commercial vehicles together with components and engineering design services business in the country.

The JV called, VE Commercial Vehicles Ltd (VE CV) will make use of Eicher brand for light and medium (LM) commercial vehicle segment, whereas the Volvo brand will be targeted at the premium heavy commercial vehicle (HCV) segment in India.

Volvo’s stake in VECL will be 45.6%, whereas EML will hold remaining stake of 54.4%.

Eicher Motors said its commercial vehicles business along with components and design services business will be transferred to the JV on a slump sales basis, for Rs 202 crore. The Royal Enfield two-wheeler business will remain with EML.

Volvo will pay Rs 1,082.1 crore for the 45.6% stake in the joint venture (VE CV) and also transfer its distribution and service network in India.

Volvo is also picking up 8.1% stake in EML that will hold 54.4% stake in the joint venture. The stake is being bought from the promoters at Rs 691.68 per share for a total cost of Rs 157 crore.

Additionally, EML and the promoters have inked a non-compete agreement with Volvo for which the latter will pay them each Rs 39.35 crore.

Par Ostberg, member of Volvo group executive management, has been selected chairman of the joint venture while Eicher Motors' managing director and chief executive Siddartha Lal will hold the same posts in VE CV.

The shares of EML, on Monday (May 26), gained 20% at Rs 384.30 on the Bombay Stock Exchange (BSE).