Ashok Leyland takes 26 percent stake in British Optare

CHENNAI - Ashok Leyland has bought 26 percent stake in Britain-based bus maker Optare for $7.5 million in a bid to enter new segments and insulate itself from down cycles affecting the commercial vehicle segment.

“One of the elements in our market insulation strategy is to acquire companies overseas that would provide us technology or products. The stake acquisition in Optare will provide us technology in making range of low floor buses,” V. Sumantran, executive chairman, Hinduja Automotive Ltd and a member of Ashok Leyland’s board, told reporters here Thursday.

He said the $125 million turnover Optare making mid-sized buses and double deckers is largely owned by group of investors and Ashok Leyland could up its stakes in the company in future as and when other shareholders exit.

He added that no other vehicle manufacturer can buy into Optare like Ashok Leyland as per the agreement between the two companies.

According to Sumantran, the investment by Ashok Leyland will enable Optare improving its cost competitiveness in the British market with access to Ashok Leyland’s low cost supply chain.

Asked about the prospects of Ashok Leyland selling its engine and gear boxes to Optare, Sumantran said: “Such a possibility is there. In Europe, the bus buyers specify the kind of engines and power trains that the vehicle should have.”

“This is one way of growing our bus business portfolio. We were on the look out for quite sometime and finally partnered with Optare,” Venkat Venkatesan, senior vice president, Hinduja Automotive, told IANS.

About the tie-up, Optare CEO Jim Sumner told reporters through video conferencing: “We hope to get cost reduction in component sourcing. We see good pick up in the European bus market now.”

Optare will use the $7.5 million raised from Ashok Leyland from fresh equity to support investment in global bus development programme and further reduce both the whole life costs of its products and term debt.

Optare’s order book currently stands at a 12-month high of £27.4 million.

Ashok Leyland will get two board nominations in Optare for its stake.

Sumantran also said as per the deal Ashok Leyland will make and supply Optare buses for some of the markets leveraging its plants in Ras Al Khaimah in the United Arab Emirates and Alwar in India.

Asked about Irizar TVS, a three-way joint venture between Ashok Leyland, TVS and Irizar of Spain, Sumantran said: “The Irizar tie up is for making inter-city buses and will not conflict with investment in Optare. Optare focusses on building city buses.”