Mahindra drives into China again

Forms second tractor JV, invests $26 million for majority stake in Yancheng.

Auto major Mahindra & Mahindra (M&M) has moved a step closer towards becoming the world's largest tractor manufacturer. The tractor giant today invested $26 million (nearly Rs 104 crore) to acquire a 51 per cent stake in Jiangsu Yueda Tractor Manufacturing Co (Yancheng Tractor), the third largest tractor manufacturer in China and its largest exporter.

With this acquisition, M&M will sell around 170,000 tractors this year, close to what market leader John Deere sold in 2007 (160,000 units). "With an alliance with Yancheng, we will be able to achieve our goal of being the world's largest tractor manufacturer much earlier,'' said M&M Vice-Chairman Anand Mahindra.

 

Yancheng, which sold 26,000 tractors last year, is increasing its capacity to 50,000 units. It enjoys a good brand value (Huanghai Jinma), wide product range (16-125 HP tractors) and a distribution network across China. With its other joint venture with Jiangling Tractor Company, which makes smaller tractors, M&M plans to sell 30,000 units in China this year, aiming to be the largest player there.
 

A FIELD DAY

Yancheng Tractor is the third largest tractor manufacturer in China with a good brand, wide product range, and wide distribution network

With another JV, M&M could consolidate its presence in China, the fastest growing tractor market

As China and the world move to higher horsepower tractors, Yancheng's wide range of tractors (16-125 HP) can come handy

Yancheng exports to 60 countries in South America, Europe, Africa and US; M&M can use China as a manufacturing base for exports

What makes Yancheng attractive is its export footprint in 60 countries, including the US, South America, Europe and Africa. M&M could use the cost competitiveness of Chinese manufacturing to penetrate more markets such as Africa, Australia and New Zealand, which use higher horsepower tractors that the Chinese company is capable of making.

China shines

The Chinese tractor market is itself becoming attractive. Though it is smaller than the Indian tractor market (at 330,000 units a year, it is the largest), China is the fastest growing one with a compounded growth of 40 per cent. It has grown from 60,000 units in 2003 to 220,000 units in 2007.

Besides, Chinese farmers are adopting higher horsepower tractors at a rapid pace. In 2004, China came up with a new agriculture policy, which has catalysed growth by abolishing tax on agriculture and providing subsidy for the purchase of tractors to enhance growth and income of farmers. "China has a large number of belt-driven tractors (700,000) and it is only in the last four years that the gear-driven tractor market has grown to 220,000. It also has about a million power tillers,'' said Bharat Joshi, executive director and group CFO, M&M, reasoning why the tractor market in China is smaller than India's.

The M&M stock fell 3 per cent to Rs 567.85 on the BSE on a day when its benchmark index fell 0.53 per cent.

Hummer & Chrysler

Denying reports of its interest in American iconic utility vehicle Hummer, M&M said it was not pursuing the brand, which General Motors has put on the block. "I'd like to categorically state that we are not pursuing Hummer," said Mahindra. He also said M&M was in dialogue with Chrysler to sort out a dispute over the grill design of its SUV Scorpio.

"We are having a dialogue to resolve the issue, but we are confident that there is absolutely no infringement," he said.