MUMBAI: For the Mahindras, it’s yet another feather in its cap. Going the Tata way of acquiring automobile companies based overseas, M&M, leaders in utility vehicles and tractors, has emerged the preferred bidder for the ailing SsangYong Motor Company based in South Korea. The acquisition is very critical to the company’s global ambitions of having its presence felt in the global passenger vehicles markets.
“SsangYong has a great heritage and like us is a specialist in utility vehicles,” said Anand Mahindra, Vice Chairman and Managing Director, M&M, addressing newspersons in Mumbai. Dr Pawan Goenka, president, Automotive and Farm Equipment sector, said the plan was to bring SsangYong products to India, especially the company’s compact SUV Korando and Rexton. The goal, he hinted was to start local assembly at the Chakan plant where M&Ms world SUV is being developed. The project is code named W 201 and is M&M’s ambitions project to capture the world markets.
According to latest news, M&M signed an MoU with SsangYong Motor Company (SYMC) to acquire a majority stake in the South Korean SUV maker. This will be followed by a detailed due diligence process and finalization of definitive agreements. SYMC is a significant player in the SUV segment in Korea, having recorded 1.3 million SUV sales from 1990 to 2009. Mahindra, a US $7.1 billion Indian multinational, employs over 1,00,000 people across the globe. The entire acquisition formalities are expected to be over by November 2010.
As on December 31, 2009 SsangYong has a debt of $ 640 million (approx Rs 3832.6 crore). But according to Bharat Doshi, Chief Financial Officer of M&M the company has a Rs 2500 crore surplus cash and thus there is sufficient ability to raise funds. SsangYong would be acquired as a debt-free company, he said.
Mahindra said that the Korean company has the internal capability to make engines too. The company has twpo plants with a capacity to make 120,000 vehicles a year. For the current year, the company has already made 44,000 units, of which more than 50 per cent were exported to other countries.
M&M, a highly diversified company
From assembling Willy Jeeps in the early 1940s to manufacturing highly engineered products in the 21st century, the Mahindra group has diversified into almost every significant area under the vast industry umbrella. From software to realty, to vehicle manufacturing to financial services, from aeronautics to farm equipment, the Mahindra group, an almost $ 7 billion (Rs 32,900 crore approximately) industrial conglomerate has still not lost its appetite for acquiring companies that have a synergetic appeal to its existing businesses.
There is no denying the fact that under Anand Mahindra the Mahindra group has been growing in a great hurry for the last several years. In the midst of several acquisitions, rumours and reports have been flying thick and fast about its plans to acquire everything and anything that has come in the way of the company. News like “M&M to acquire LML”, “M&M to acquire International Cars & Motors Ltd” etc have all made their way into the columns of leading newspapers and magazines in the country. Some of its acquisition efforts have failed too in the past, like the one for a major Finnish tractor major. But all that is history and Anand Mahindra is not going to let these dampen his high spirits. Now that the Reva acquisition is over, it’s bid successfully for the bankrupt South Korean vehicle manufacturer Ssangyong Motor.
Mahindra & Mahindra, the flagship company of the group is determined to carve for itself a major chunk of the automotive business in India and abroad. Last year (2008-09) M&M recorded gross sales of Rs 14,713 crore and made itself a net profit of Rs 836.78 crore. At that time it had reserves of Rs 4959 crore. The company has automotive plants in Chakan, Nasik, Kandivli, Igatpuri, Zaheerabad and Haridwar. Name a motorised vehicle, the company manufactures them at these plants. It’s a leader in the utility vehicle segment and could one day translate this victory in the passenger car segment too. It has a joint venture with Renault to manufacture the Logan car. Sometime back it got into the two-wheeler business by acquiring Kinetic Motor Company. It has forayed into the medium and heavy commercial vehicle segment, having inked a JV with International Truck & Engine Corporation, USA (a subsidiary of Navistar International).
M&M’s accolades do not end there. It’s a leading tractor manufacturer, having a joint venture with a leading Chinese tractor company. The company’s tractors are sold across the globe. At one point of time it merged with Punjab Tractors Ltd (PTL), a tractor company with a solid presence in north India. The company has a few international auto design firms under its belt, as well as a few global component companies. Just when the industry thought Anand Mahindra would sit back and relax, his company announced taking a majority stake in electric vehicle manufacturer Reva.
Going Electric With Reva
The company in May 2010 strengthened its position in the electric vehicles domain with the acquisition of a majority stake in Reva Electric Car Co Ltd. Bangalore. Reva Electric Car Co Ltd. will be renamed Mahindra Reva Electric Vehicle Co Ltd. Under the new agreement which was signed by both the companies, M&M will own 55.2 per cent equity in Mahindra Reva by a combination of equity purchase from the promoters and a fresh equity infusion of over Rs 45 crores (approx US $10 million) into the company. The buyout makes the Mahindra group a strong global player in the electric vehicle space.
Post the buyout, the Board of Mahindra Reva was re-constituted under the chairmanship of Dr Pawan Goenka, President Automotive & Farm Equipment Sectors, Mahindra & Mahindra. The new board includes five nominees from Mahindra & Mahindra, two from the Maini family, and one from AEV LLC, California (co-founders of Reva). An independent director will be added to the board subsequently. Mr Chetan Maini will continue to play a leading role in Mahindra Reva as Chief of Technology & Strategy and will continue to be on the board.
Under its core Sustainable Mobility initiative, Mahindra has been working for the last 10 years on developing green technologies and has demonstrated diesel hybrid technology on the Scorpio and hydrogen Alfa three wheelers. Mahindra has a pilot fleet operating with 100 per cent bio-diesel and was the first to launch micro-hybrid technology in India with around 50,000 such micro-hybrids on the road today. In EVs, over and above the electric three-wheeler Bijlee developed in 1999, it is also currently working on an electric version of its mini-truck, Maxximo. Mahindra Reva’s EV technology will be adapted for these and other M&M vehicles. Access to strong EV technology will strengthen Mahindra’s other current sustainability initiatives.
Reva is currently marketing its products in 24 countries across the world with an overall vehicle population of over 3500, arguably the largest EV fleet globally. Reva recently premiered its next generation electric car models, the NXR and NXG which received an enthusiastic response. Mahindra Reva will now have access to Mahindra’s vehicle development technology and distribution network, significantly enhancing its ability to launch a state-of-the-art electric vehicle for global markets.
Speaking on the acquisition, Anand Mahindra, Vice Chairman and Managing Director, Mahindra & Mahindra said, “With issues such as climate change and carbon footprint taking centre stage globally, eco-friendly transportation becomes the need of the hour. Mahindra already has an established sustainable mobility solutions programme and our association with Reva will only help us further expand our green footprint both in India and overseas”.
Dr Pawan Goenka, President (Automotive & Farm Equipment Sectors), Mahindra & Mahindra and the newly elected Chairman of Mahindra Reva said, “This is a key strategic acquisition for Mahindra in its march towards sustainable mobility. Mahindra and Reva bring together complementary strengths. With Mahindra’s vehicle engineering expertise, global distribution network, sourcing clout and financing support, Reva’s vehicles have the potential to significantly gain in market penetration. Mahindra will also benefit from Reva’s EV technology for its own products.”
Reva was established in Bangalore in 1994 as a joint venture between the Maini Group of Bangalore, India and AEV LLC of California, US. Reva launched two new electric cars at the 63rd Frankfurt Motor Show in September 2009; the NXR and the NXG along with the REVive remote emergency charge system, Reva’s unique proprietary technology. In January 2010, the Chevrolet e-Spark premiered at the Delhi Auto Show, with GM India’s platform powered by REVA.
Mahindra, the conglomerate
Mahindra is the only Indian company among the top tractor brands in the world and has made an entry in the two-wheeler segment, which will see the company emerge as a full-range player with a presence in almost every segment of the automobile industry. The Mahindra Group expanded its IT portfolio when Tech Mahindra acquired the leading global business and information technology services company, Satyam Computer Services. The company is now known as Mahindra Satyam.
While the acquisition of the South Korean car maker is happening, the company’s foray into medium and heavy commercial vehicles will definitely have a positive impact on overall revenues. Very soon it would be launching commercial vehicles under the Mahindra Navistar brand. It was in 2005 that M&M had inked a joint venture with International Truck and Engine Corporation, USA (a subsidiary of Navistar International) to manufacture commercial vehicles in India. The company’s plant in Chakan is finally over and is ready for production. The joint venture company was earlier known as Mahindra International but was subsequently christened as Mahindra Navistar.
In the meantime M&M and Renault have restructured their joint venture for making the sedan Logan in India, following which the Indian firm will buy out its French partner for an undisclosed sum.
M&M will buy out Renault’s 49 per cent stake in Mahindra Renault Pvt Ltd, thus becoming a 100 per cent subsidiary, the two companies said in a joint statement in April 2010. However Renault will continue to support M&M and Logan through a licence agreement and supply key components, including engine and transmission, the statement said.
The Renault name and logo will continue to be used till the end of this year, it said. After 18 months, the car will be renamed and will sport only the Mahindra logo it added.
“The new agreement between Mahindra and Renault will give us the opportunity to chart out a new strategy to help drive the Logan brand in India, which will also include engineering changes, keeping in with customer requirements,” Goenka said.
M&M and Renault had decided to join forces in 2005 to produce and commercialise the Logan with an investment of Rs. 700 crores, producing 50,000 units per annum at M&M’s Nashik plant. While Mahindra held 51 per cent in the JV, Renault owned the rest 49 per cent. The JV had also envisaged a seven-seater multi purpose vehicle besides the sedan Logan, but was later shelved due to unfavourable response to a market research and also Mahindra launched Xylo MPV in the Indian market which is selling well.
Now with its fingers in several pies---utility vehicles, passenger cars, two-wheelers, medium and heavy trucks and tractors, among others, M&M is poised for a big push forward in the new post-economic recession period. As for new acquisitions and mergers, for the Mahindras, it would only be a cake walk!
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