Changing hands

New Delhi, May 25: Eicher Motors will sell its tractors, engines and gears divisions at Manideep, Alwar and Parwanoo to Chennai-based Tractors and Farm equipment Limited (Tafe) for Rs 310 crore.

?The board of directors of Eicher Motors today approved the sale on a going concern basis of the tractors, engines and gears divisions for Rs 310 crore,? said S. Sandilya, chairman and chief executive of the Eicher group.

The board has approved the slump sale, subject to shareholders? approval, Eicher Motors has informed the Bombay Stock Exchange.

It has also approved the investment of $2.5 million for acquisition of a US-based company engaged in computer-aided engineering and design services.

Eicher, however, did not name the company it plans to buy.

With the acquisition of the Eicher unit, Tafe ? the second largest manufacturer of tractors in India ? will eye market dominance.

?This acquisition will provide strong synergies of growth in the future to help achieve market dominance. It will give us an additional revenue of Rs 500 crore. We are targeting Rs 2,000 crore in 2005-06,? said Tafe director Mallika Srinivasan.

Tafe has a significant presence in the 30-40 HP segment, while the Eicher brand holds a large market share in the 30 HP segment.

Speaking about the growth of the tractor industry, Srinivasan said improved finance options, normal monsoons and a stable political climate are key factors.

With this acquisition, Tafe?s combined market share is 22 per cent and a volume of 53,000 tractors. This is expected to increase to 60,000 by the next fiscal.

The move will also result in Tafe having a distribution network of over 3,000 dealers, branches, service and spares outlets.

According to industry data available for the April-December 2004, Tafe registered sales of 24,191 units, while Eicher sold 13,670 tractors.

The acquisition is expected to give Tafe an entry into the lower horsepower category as well as a presence in states where Eicher has a sizable market share.

However, analysts say there could be problems related to synergy for Tafe as the two manufacturers use different technologies and strategies related to marketing and distribution. So, it might be difficult to focus on two brands.