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M&M to invest in joint venture for launching new variants

Source : BUSINESS_STANDARD
Last Updated: Mon, Dec 24, 2012 19:41 hrs
A customer stands next to a Mahindra vehicle on display inside the company's showroom in Chandigarh

Mahindra and Mahindra, which bought out its foreign partner Navistar's stake in the struggling commercial vehicle joint venture, said it will invest more in the venture which will eventually become a subsidiary. The proposed investment is for rolling out new variants of trucks, on exports and others. Besides, the company has stated that if it decides to expand the product portfolio further, then it may look at roping a new partner.

On Tuesday, the automajor M&M announced that it has acquired 49 per cent from its US joint venture partner Navistar for around Rs 175 crore. Thirty months since the first product was rolled out by the JV partners.

Speaking to Business Standard at the Mahindra Research Valley, the largest research centre in the automobile industry which houses around 2,500 people, at the Mahindra World City, on the outskirts of Chennai, Mahindra and Mahindra (M&M) president (automotive) Pawan Goenka said that Navistar's stake in the JV which was valued at Rs 175 crore, which was less than the investment in the JV which was about Rs 510 crore.

"The JV was losing money and will continue to do so for sometime, and that's why the valuation was lower," he explained.

Asked when Mahindra Navistar will breakeven, he said it could happen when it touched sales volumes of 800-900 units a month compared to 200 units now.

He added that if the industry does well, then the breakeven could happen quickly. Unfortunately, the industry is in significant downturn with a 24 per cent contraction in the first eight months of the current fiscal and the remaining four months doesn't look positive.

"We don't see a turnaround happening in fiscal 2012 and 2013. It may happen in fiscal 2014. Once it happens, we expect an increase in our volumes," said Goenka.

When asked if there is any problem in the portfolio, he said, "I don't think so. What we are lacking is the market. Customers are not willing to experiment with the new brand, since they are struggling for their survival," said Goenka. He noted that around 250,000 used trucks are not sold in the country.

To a question on whether M&M can go alone in this business, he said, "If you would have asked this question in 2005, certainly the answer is no." "That time, the choice for us was either exit the CV space completely or partner with a global player"

In the last seven years, M&M has learnt a lot and has enough products now, which completely belong to the company. So, it is not difficult to do business alone since the company has the full ecosystem including R&D, sales and services, dealership network, supplier base, development activities and others.

"But, later if we want to expand the product portfolio, say in the 9-16 tonne category, then we may look for a partner."

Goenka said the company will invest Rs 150-200 crore in Navistar in the next two to three years. The investment will go into meeting emission norms, in some new variants like long-wheel trucks and also in export markets.

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