The rating favorably considers the partnership between AB Volvo, ranked No.2 in the global commercial vehicle (CV) market, and Eicher Motors Ltd., an established player in the medium commercial vehicle market in India.
ICRA expects VECV to benefit from the access to a global distribution network, strong technical skills and strong financial profile of AB Volvo, besides benefits of EML’s established brand image and products in the domestic CV market, widespread sales and distribution network in India and understanding of the Indian CV customers and dynamics related to the Indian road transportation industry.
The rating also derives comfort from the favorable cash position of the company on account of large funds infused by the foreign partner. The rating factors in the intensifying competition in the CV industry, sharp decline in the industry volumes, weak demand expectations over the short term and increased cost pressures.
However, the company’s strong financial risk profile characterized by the net cash position and low working capital requirements partially offsets the concerns. The rating also factors in relatively small contribution of revenues from engineering services that currently has weak profitability given it is still in gestation period, besides the small contribution from gears business that is currently operating at breakeven levels.
