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Mid-sized cars like Tata Indigo, Hyundai Accent, Maruti Esteem and Ford Ikon will soon
have another tough competitor. Tractor and utility vehicle major Mahindra & Mahindra
(M&M) has joined hands with French car maker Renault SA to form a Rs 700-crore joint
venture to manufacture Renault’s popular mid-sized and low-cost sedan car Logan in
India by the first half of 2007.
M&M will hold a majority stake of 51% in the joint venture with a
production capacity of 50,000 cars per year, for which it plans to utilise part of the
proceeds of its recent $100-million foreign currency convertible bonds (FCCB) issue.
French partner Renault will own the remaining 49% holding.
With 50% localised components, the car will be marketed in India under
the brand name Mahindra Renault. As Renault owns a 44% stake in Japan’s auto-maker
Nissan Motor, Logan will make a debut with the Nissan tag. The car will be produced in any
three of the six manufacturing facilities of M&M: Nasik, Zaheerabad and Haridwar.
Renault is currently developing a right-hand drive version of Logan, in partnership with
M&M, to meet the needs of India and other right-hand driven markets.
M&M is primarily engaged in the manufacture of agricultural
tractors and LCVs through its automotive and farm equipment division. The company has also
ventured into the manufacture of industrial engines. It is currently regarded as the
market leader in the Indian tractor industry with a manufacturing capacity of 80,000
tractors per year. It is the fourth largest tractor brand worldwide in terms of units
sold.
Renault manufactures a range of small- and mid-sized cars such as Clio,
Megane, Espace and Scenic and light commercial vehicles like Kangoo Express, Traffic and
Master. The French government reduced its 26% stake in Renault to 16% in 2003. Logan,
which originally belonged to the Romanian car-maker Dacia, was acquired by Renault in 1999
and is today considered a competitive product in the C segment.
Logan has already been launched in Europe at $6100 for the base model
without power steering, air-conditioning, stereo, power windows and ABS. India will be the
sixth country to produce Logan, apart from Romania, Russia, Morocco, Columbia and Iran,
where Renault is assembling the vehicle. The French company expects the mid-sized car,
powered with a 1.4-litre engine, to sell at least seven lakh units annually by 2010 in
seven low-wage countries in eastern Europe, central Europe, Russia, Middle East, Latin
America, North Africa and Asia.
M&M had an association with Renault earlier, too, as it used the
Renault petrol engine for its sports utility vehicle, Scorpio. In 2004, M&M was toying
with the idea of exporting its entire range of vehicles, including LCVs and utility
vehicles to France. This arrangement would have benefited both partners. Renault dealers
would have more products to sell, while M&M could have accessed overseas markets via
Renault’s worldwide presence.
However, Renault is not M&M’s first car-making partner. In
November 1995, US-based Ford Motor Company, the world’s second largest automobile
company, ventured into India along with M&M to form a 50:50 joint venture Mahindra
Ford. The two subsequently parted ways following M&M’s decision to freeze
investments in the joint venture and the company was rechristened Ford India. Mahindra
still holds a 15% stake in Ford, while Ford holds 10% in M&M.
M&M is currently in the process of increasing its presence
worldwide. In December 2004, it signed an agreement with Jiangling Motor Company Group
(JMCG) of China to acquire 80% of JMCG-owned Jiangling Tractor Company (JTC) with a
12,000-unit capacity for $10 million to form Mahindra China Tractors. This will be an
80:20 joint venture with M&M chipping in a huge $8 million, while JMCG will contribute
$2 million. The JV aims to ramp up its existing production capacity of 12,000 units by
2,500 tractors per year. M&M has also acquired the Fengshou brand belonging to JTC
tractors.
The association with JTC will give the Indian auto company a strong
manufacturing base in China and an existing distribution network, along with a
complementary product range. Besides getting a foothold in the Chinese markets and
enhancing its global portfolio, M&M will use the Chinese subsidiary to source
components for its automotive and tractor operations.
The Jiangling tractors will sell under the Mahindra brand in the US,
where M&M aims to up its market share to 10% in the $2-billion US tractor market, from
5%. It also plans to set up its third tractor plant in US through its wholly-owned
subsidiary, Mahindra US Inc.
In the domestic market, the tractor major has lined up a Rs 350-crore
investment for capital expenditure for the development of new products and aggregates, the
expansion of its existing plant capacity and modernisation and addition of its R&D
facilities. The capex project is also expected to be funded through the FCCB proceeds.
M&M has registered a remarkable performance. Its net profit, which
stood at Rs 102.69 crore on net sales of Rs 3256.75 crore in FY 2002, jumped 239% in FY
2004, with a net profit of Rs 348.54 crore. Net sales, meanwhile, rose 49.6% to Rs 4873.03
crore.
Beginning the year 2004 at Rs 395, the M&M stock rose 26.6% to a high of Rs 500.45
in the first half. However, in the second half of 2004, the scrip declined on most trading
days and even touched its half-yearly low of Rs 410. From October 2004, the stock again
began its upward journey. Within three months, the scrip jumped 32.8% to end the year at
Rs 544.5 on 31 December 2004. In 2005, the stock has been trading between Rs 480-565. |
