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| M&M may buy out partner in Mahindra South Africa |
| Sohini Das / Kolkata Jun 11, 2009, 00:24 IST |
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 Leading Indian utility vehicle (UV) player Mahindra & Mahindra (M&M) is likely to buy out its local partner in Mahindra South Africa (Mahindra SA), which is currently a 92 per cent subsidiary.
The company is also evaluating the possibility of starting a local completely knocked down (CKD) assembly unit there. A decision on buying out the stake of its local partner is likely to be taken in a month’s time. The 8 per cent stake is held by African Automotive Investments Corporation, a subsidiary of African Resources and Logistics Corporation.
Mahindra SA sells the Bolero, Scorpio and Xylo ranges in South Africa, with the Thar off-road vehicle on its way later this year.
“On the ownership issue, we are moving ahead in a month’s time or so. This will help in building the brand Mahindra in the South African and adjoining markets as we will be able to take independent decisions,” M&M’s Executive Vice-President for international operations, Pravin Shah, said. He, however, did not reveal the valuation of the 8 per cent stake.
As for the local CKD assembly unit, the company is evaluating options as it is focussed on South Africa as a long-term strategic market.
The company’s local assembly ambitions could be facilitated within an existing vehicle plant of another vehicle manufacturer, which has spare capacity available. Mahindra already has an assembly plant in the North African country of Egypt. Logistics’ costs and potential import duty benefits are the key drivers behind the decision to have a local assembly unit. Shah pointed out that, while one would definitely make savings in terms of duty and logistics, one had to invest in the assembly plant at the same time.
“At a time when international car markets are witnessing a 30-35 per cent downturn in sales, one has to take a cautious decision. One has to reach a critical mass to make the project viable,” Shah added. He maintained that, while M&M was evaluating options, no concrete decision has been taken so far.
Once an assembly unit is set up in South Africa, Mahindra can use it to serve the adjoining markets like Zambia, Angola, Zimbabwe and Botswana, among others. Analysts pointed out that another tangible benefit might also include the access to the US market through its local assembly in South Africa. The African Growth and Opportunity Act provided duty-free access to the US for a large number of products from over 35 African economies. Mahindra plans to enter the US market with its Scorpio later this year.
Mahindra SA had sold over 1,500 vehicles in the local market last year. At its peak before the recession, Mahindra sales had reached roughly 5,000 units a year in South Africa.
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