Mahindra and Mahindra Ltd (M&M), which bought out its foreign partner Navistar International Corp's stake in two joint ventures for around Rs 175 crore, has said it will pump more money into the companies, which will eventually become a subsidiary of the Indian utility vehicles major.
The proposed investment is to roll out new variants of trucks. Besides, the company will expand the product portfolio and may also look at roping in a new partner, according to a top official.
On Tuesday, M&M announced it had acquired 49 per cent stake each from its US partner in Mahindra Navistar Automotives Ltd, which makes trucks and buses in India, and Mahindra Navistar Engines Pvt Ltd, which manufactures engines.
Speaking to Business Standard at Mahindra Research Valley, the largest research centre in the automobile industry, on the outskirts of Chennai, M&M president for automotive, Pawan Goenka, said the company would invest around Rs 150-200 crore in the next two-three years in the commercial vehicle maker. The investment will be for emission norms and some new variants like long wheel-based trucks and also in export markets.
The deal value, Rs 175 crore, is the value of Navistar’s shares in the JVs, which is less than the actual investment made, which was about Rs 510 crore, he added. “The JVs were loosing money and will continue to do so for some time, that’s why the valuation was lower.” Asked when Mahindra Navistar will break even, he said it could happen when it reached the sales volumes of 800-900 units a month from 200 units now.
If the commercial vehicles industry does well, then break-even can happen quickly. Unfortunately, the industry is in significant downturn with 24 per cent contraction in the first eight months of the current financial year and the remaining four months don’t look positive, he said. “We don’t see a turnaround happening in fiscal 2012 and 2013, it may happen in fiscal 2014. Once it happens, we expect increase in our volumes,” said Goenka.
Asked whether there’s 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 the new brand, since they are struggling for their survival.” He noted around 250,000 used trucks are not sold in the country.
To a question on whether M&M can go it alone in this business, Goenka responded: “If you had asked this question in 2005, certainly the answer would have been no. That time, the choice for us was either to exit the commercial vehicle 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 are completely belonging to the company. So it is not difficult to do business alone since the company has a full eco-system, including research and development, 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,” he added.