M&M to invest in Navistar to launch new variants

On Tuesday, the automajor had announced that it has acquired 49% from its US joint venture partner for around Rs 175 crore

Mahindra and Mahindra, which bought its foreign partner stake in the struggling commercial vehicle joint venture, said that it will invest more money in the venture, which will eventually become a subsidiary.

The proposed investment is to roll out new variant of trucks, on exports and others.

Besides, the company also stated that if it decides to expand the product portfolio further then it may look at roping a new partner.

On Tuesday, the automajor M&M announced that it has acquired 49% from its US joint venture partner Navistar for around Rs 175 crore, thirty months since the first product was rolled out by the JV partners.

Speaking to Business Standard at Mahindra Research Valley, the largest research centre in the automobile industry which houses around 2,500 people, at Mahindra World City on the outskirts of Chennai, M&M's President for Automotives Pawan Goenka said that Rs 175 crore is the value of Navistar’s shares in the JV, which is less than the investment made which was about Rs 510 crore.

“The JV was loosing money and will continue to do so for sometime, that’s why the valuation was lower,” he explained.

Asked when Mahindra Navistar will break-even, he said, it could happen when it reaches sales volumes of 800-900 units a month as compared to 200 units now.

He added, if the industry does well, then the break-even can happen quickly. Unfortunately the industry is witnessing significant downturn with 24% degrowth in the first eight months of the current fiscal and the remaining four months don’t look positive.

“We don’t see a turnaround happening in fiscal 2012 and 2013, it may happen in fiscal 2014. Once it happens we expect an increase in our volumes,” said Goenka.

Asked whether there is any problem in the portfolio, he said, “I don’t think so. What we are lacking is the market. Customers are not willing to experiment with the new brand, since they are struggling for their survival,” said Goenka.

He noted that around 2.5 lakh used trucks are not sold in the country.

To a question on whether M&M can go alone in this business, he said, “If you would have asked this question in 2005, certainly the answer would have been no”. That time the choice for us was either exit the CV space completely or partner with a global player.

In the last seven years M&M has learnt a lot and has enough products now, which completely belong to the company, so it is not difficult to do business alone since the company has the full ecosystem including R&D, sales and services, dealership network, supplier base, development activities and others.

“But later if we want to expand the product portfolio, say in the 9-16 tonne category, then we may look for a partner”.

Goenka said the company will invest around Rs 150-200 crore in the next 2-3 years in Navistar. The investment will be for emission norms, in some new variants like long wheel based truck and also in export markets.