For Ssangyong Motor, life has come full circle. Almost a decade after Mahindra and Mahindra (M&M) wrested control of the then ailing Korean automaker, the Anand Mahindra-led firm has chalked out a three-year turnaround plan, amid dwindling sales in the domestic and overseas markets and mounting losses.
Mahindra acquired 70 per cent stake in Ssangyong (in March 2011), which had a troubled past and militant trade unions.
As part of the latest plan, Mahindra will pump in 450-500 billion Korean won ($380 million-$425 million) to revive the company that has been hit hard by a rapid shift in buyer preference from diesel to petrol, steep drop in exports volumes and a global economic slowdown.
While half of the fund will be raised via equity, the other half would come from a bank loan. The maker of Rexton SUV reported a loss of 300 billion Korean won for the year that ended in calendar year 2019, the steepest in its history. “We have made a three-year plan which has been approved by the board of Ssangyong. We want to be profitable by 2022,” Pawan Goenka, managing director, M&M told reporters on Tuesday.
Among other things, the plan includes shaving off the material costs in an aggressive way and save at least 80-90 billion Korean won per year. This will be a two-year project which will give the company around 3 per cent improvement in the operating profit margin, said Goenka.
Ford will be yet another pillar in the turnaround strategy, he added.
“It is our estimate that for full recovery, it will take 450 to 500 billion Korean won of funding support,” said Goenka. Mahindra is in talks with lenders for funds. It has also engaged external consultants to vet the turnaround plan.
Also, as a result of the recent round of negotiations with the labour union, Ssangyong is hoping to pare personal cost significantly in 2020 and 2021. Meanwhile, the company is working on developing new markets, including Russia, China and Vietnam, as part of a strategy to de-risk itself geographically.
“A combination of these three to four steps will give us the kind of improvement that we are looking at, said Goenka. Though the new model launches are expected to boost volumes, it is likely to be much different from last year when it sold a total of 120,000 units, he said.
The turnaround may not be easy to execute, said Mitul Shah, vice-president, research, at Reliance Securities. “Considering they couldn’t get the desired performance even during the best of times — when sales were looking up globally, executing a turnaround now, amid disruption and a global slowdown, looks tough. The plan, therefore, doesn’t give enough confidence to investors,” said Shah.
M&M’s December quarter profit fell 73 per cent year-on-year, on a one-time impairment provision of Rs 380 crore. The financials include that of the commercial vehicles unit, Mahindra Vehicle Manufacturers.
Goenka guided for a slow first quarter for the auto business as disruption from implementation of the BS-VI norms take effect.
While price of gasoline-powered models are expected to rise by Rs 20,000, diesel will see a sharper increase of up to Rs 1.25 lakh, said Goenka.
None of the manufacturers, however, will be able to take the price increase in one shot, given the weak demand.
Starting from the first quarter of fiscal year 2020-21, M&M plans to bring a litany of new models in the SUV, tractor and electric segments.
Shah expects Mahindra’s margins to remain under pressure as the company may end up absorbing the additional demand. M&M’s shares closed at Rs 524.40 on Tuesday, down 0.69 per cent on the BSE. The Sensex closed at 41,216.24 points, up 0.58 per cent.