M&M's SsangYong to invest $1 bn on product development

Company will focus on improving profitability

SsangYong, the South Korean automobile company of Mahindra & Mahindra (M&M), plans to invest $1 billion over the next three-four years to develop new products to grow sales and turn profitable. The company has been mired in losses for the past few years.

"All the fundamentals have been put in place and now we will focus on financials. Finance was not the primary objective so far. Now it will be. The market share is improving and the brand is reviving. There is a good team in place and we have solved all labour problems that we inherited," Pawan Goenka, executive director at M&M, had told Business Standard last week.

M&M spent Rs 2,100 crore in 2010 to acquire a 70 per cent stake in SsangYong. The stake was later raised to 73 per cent. SsangYong reported sales revenue of Rs 13,417 crore in the nine months ended September 30, 2015 marginally down from the year-ago revenue of Rs 13,865 crore. Net loss, however, widened from Rs 189 crore to Rs 450 crore.

"We have two more brand new platforms in the pipeline. We will launch those. There would be an investment of close to $1 billion over next three-four years in products and to grow the market in South Korea and outside," said Goenka.

SsangYong gets about 70 per cent of its revenue from its home market, the Republic of Korea. The other significant markets are Europe and Asia-Pacific. Its revenue from the home market has increased 20 per cent in the nine months ended September 30, 2015, to compensate the decline in revenue from Europe and Asia-Pacific.

Sales volume has seen an upward trend. SsangYong sold 144,764 vehicles in 2015, up 2.6 per cent from 2014. Helped by robust sales of the sports utility vehicle Tivoli, which was launched in January last year, SsangYong's domestic sales in 2015 touched a 12-year high of 99,664 units and grew 44 per cent over 2014. Interestingly, Tivoli contributed 45 per cent of the SsangYong's volume in the domestic market.

"Had we focused on financial performance from Day One, we would have reached nowhere. Other than financials, SsangYong is seen as a very good turnaround story in Korea. It is not something where Mahindra cannot take credit. The local SsangYong management and workers have made efforts. Tivoli is more successful than our expectation," said Goenka.

The Tivoli posted the highest ever yearly sales record (among all SsangYong vehicles) in the company's history by selling 63,693 units including 45,021 units in the domestic market and 18,672 units markets abroad. The previous highest record was 54,274 units of the Rexton in 2004.

MAKING SALES GROW

• Company has been mired in losses for past few years
   
• M&M acquired a 70% stake in the firm in 2010 for Rs 2,100 cr
   
• SsangYong reported revenue of Rs 13,417 cr in nine months ended Sept 30, down from Rs 13,865 cr a year ago
   
• It gets about 70% of its revenue from home market, South Korea
   
• SangYong sold 144,764 vehicles in 2015, up 2.6% from 2014
   
• Its domestic sales in 2015 touched a 12-year high of 99,664 units and grew 44% over 2014