Mahindra & Mahindra (M&M) will buy out its French partner Renault’s 49 per cent stake in the joint venture — Mahindra Renault Pvt Ltd — for an undisclosed amount. The joint venture manufactures the no-frills Logan, an entry level sedan.
The two partners have had serious differences over the future of the venture, especially as the only model from the company — the Logan — has seen its sales go down by over 60 per cent in 2009-10, selling only 5,332 units.
According to a joint press release, the senior executives of both the entities had signed a Framework Agreement earlier this week, which allows M&M to take over the operations of the company.
“It is a reasonably win-win situation for both the partners,” said Pawan Goenka, president (automotive & farm equipment sectors), M&M, while disclosing the details of the restructuring plan.
“The new agreement between M&M 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, in keeping with customer requirements,” said Goenka.
M&M also announced they might rebrand the Logan with their name in 18 months and come out with a new version of the model, which will be four metres in length, thus helping it to be considered as a compact car with a lower excise duty. Currently, the excise duty on Logan, which has an entry level price of Rs 4.75 lakh ex-showroom, is 22 per cent. By making it a compact car model, the excise duty would come down to 10 per cent, making it more competitive in the market.
While the financial details of the deal have not been disclosed, M&M executives said Renault will pay its share of the debt, which according to sources totals around Rs 350 crore for both the partners.
The joint venture to manufacture Logan was set up in 2005 with M&M holding 51 per cent and Renault the remaining 49 per cent. The Logan is manufactured at M&M's plant in Nashik.
"Renault will continue to support M&M and the product through a licence agreement and supply of key components, including the engine and transmission," said the release. The aim of restructuring is to ensure continuity and build on the positive customer equity that exists for the Logan in India, it added.
The Renault-Nissan alliance already has a partnership with Bajaj Auto for a small car and is also talking to Ashok Leyland for another compact car which will be positioned at the level of Suzuki's Alto. It also has a JV with Ashok Leyland to manufacture light commercial vehicles.
The two global partners Renault and Nissan have already come on their own in India through Renault Nissan Automotive India Pvt Ltd. While Nissan plans to launch compact car Micra in India in November, which will be manufactured in this plant, Renault is planning to launch four models after 2012, which could include a small car.
Elaborating on the details of the agreement, Rajesh Jejurikar, chief executive (automative division), M&M, said the "rights to sell Logan in India will be with M&M".
"In India, the Renault badge will be taken away and the car shall then only display the Mahindra logo. The overall transition would take around 18 months. We will be looking at various options for value proposition," said Jejurikar.
He also said the total investment in the joint venture was Rs 650 crore.
While the agreement does allow M&M to manufacture Logan in India, whether other variants can be developed is still under discussion. "We are still in dialogue on whether M&M can build other variants of Logan on the same platform" said Goenka.
He also added that "right now the company does not have any plans for the passenger vehicle segment".
Meanwhile, shares of M&M lost 1.51 per cent or Rs 7.70 on Friday to end the day at Rs 502.65. The shares registered a sharp fall during the second half of the trading session. Earlier in the day, it touched a high of Rs 514. The stock has been on a steady decline in the last one week shedding nearly 7 per cent from Rs 538.