Heavy-duty truck maker Asia MotorWorks Ltd (AMW) is in talks with Kamaz Motors Ltd, Russia’s largest truck manufacturer, to sell a significant minority stake, according to three people familiar with the company’s plan.
If the deal goes through, it will be the first of its kind in the truck market in India.
The agreement, said one of the three people, will help debt-ridden AMW raise much-needed funds and also open up newer export markets for the company’s products.
All three spoke on condition of anonymity.
The Bhuj, Gujarat-based truck manufacturer has aboutRs.1,300 crore of debt.
“The companies are in an advanced stage of talks and likely to conclude the deal early next month,” said the first person.
“They have been in talks for almost a year now. They just need to arrive at the valuation of the deal, which is likely to happen soon,” said the second person.
This will be the Russian company’s second shot at making inroads into India’s competitive truck market.
Kamaz Motors had entered India in 2009 through a joint venture with the UK’s Vectra Group.
It bought Vectra’s stake in the venture in 2014.
The firm stopped assembling trucks in India a few months ago, according to an official with the India unit of Kamaz Motors. He declined to be named.
The truck maker still has some dealerships and has sold about a thousand trucks in India since 2010.
Anirudh Bhuwalka, managing director and chief executive at AMW, declined to comment.
Alexey Agibalov, chief executive and managing director at Kamaz, hadn’t responded to an email seeking comment, as of press time.
The deal, if concluded, will be a boost for AMW, which has been struggling after a few years of strong sales and successful operations.
Over the last two years, AMW has seen a steep decline in sales by volume, which has forced it to shut some dealerships, cut costs and delay payments to employees. A stake purchase by Kamaz will help ease the financial pressure while allowing the company to access Kamaz’s technology.
AMW is also in the process of converting its rupee debt into dollar debt, said the second person cited above, adding that this will help in reducing the interest burden. This exercise too should conclude by December, this person added.
After a two-year lull, which came on the back of slowing infrastructure projects and weak demand, sales of medium- and heavy-duty trucks in India have been advancing at a brisk pace since June last year. The revival has largely been led by strong replacement demand, in addition to a pickup in road and infrastructure projects along with improved demand in the consumables segment.
Sales of the heavy-duty trucks surged 33.49% to 136,201 units in the first seven months of the current fiscal year, according to industry body Society of Indian Automobile Manufacturers.
AMW, however, has been underperforming the broader market. The truck maker’s sales in the same seven-month period collapsed 60% to 749 units.
Besides badly needed equity infusion, the venture will also help AMW in entering newer markets where Kamaz has a presence—as many as 90 countries, said the third person familiar with the company’s plans.
Moreover, it is also likely to bolster AMW’s plans for the defence sector, which the company plans to tap in a big way, he added.
For Kamaz, a deal with AMW will offer a readily available manufacturing facility, and distribution and service footprint in India, which is critical in the trucking business.
Analysts, though, are sceptical about the potential benefits of a deal between the two.
“Neither of them has been successful despite being around for so long,” said S.P. Singh, senior fellow at Delhi-based Indian Foundation of Transport Research and Training.
“The only possible synergy that I can think of is in defence, with the sector opening up for private companies,” he added.
While it does look like a winning combination on the face of it, with AMW having distribution strength and local market knowledge and Kamaz the technology for high-end trucks, it’s not possible to say whether it will work in the long term, said Abdul Majeed, auto practice leader at consulting firm PricewaterhouseCoopers India.
“Unless the objectives are clearly defined and both have common goals, partnerships do not work,” said Majeed.
To be sure, there have been numerous instances of short-lived joint ventures in the commercial vehicles space. These include partnerships between Mahindra and Mahindra Ltd and Navistar Inc., Hero Group and Daimler AG, and MAN AG and Force Motors Ltd.
AMW’s talks with the Russian truck maker come against the backdrop of the strengthening of India-Russia business ties.
India and Russia have signed several agreements, some worth billions of dollars, in areas spanning civil nuclear cooperation, defence, energy and diamonds, as the two nations strengthened their ties during Russian President Vladimir Putin’s one-day visit to the country in December 2014.
Key deals signed included those between Russian energy firm OAO Rosneft with India’s Essar Oil Ltd for importing crude oil over a 10-year period, and Russia’s diamond mining group Alrosa OJSC signing a pact worth $2.1 billion for the direct sale of rough diamonds to Indian companies.