M&M’s loss-making 2-wheeler division drags consolidated performance

A showroom attendant cleans a Mahindra XUV500 car inside the company's showroom in Mumbai May 30, 2013. Mahindra and Mahindra Ltd , India's biggest utility vehicle manufacturer, said on Thursday consolidated operating margin for the fiscal fourth quarter rose to 14.4 percent from 12 percent a year earlier. REUTERS/Danish Siddiqui

The bike and scooter making division of Mahindra & Mahindra was the biggest loss-making unit for the conglomerate last year even as efforts of reviving the business continue unhindered under a new plan.

A loss of Rs 692 crore posted in FY17 by the two-wheeler division, which got merged into M&M last year, was the biggest loss-making division out of the 164 subsidiary and associate companies that M&M has.

The company’s strategic shift of focus towards niche premium segment from mass market earlier, however, stemmed the increase in losses. The two wheeler division’s losses came down by 20 percent last year compared to Rs 865 crore posted in 2015-16.

This loss, however, did impact the group’s consolidated profit before exception item and tax for the last financial year which stood at Rs 5,004 crore as against Rs 4,794 crore posted in FY16, a growth of 4 percent.

Two-wheeler volumes of M&M more than halved last year to 48,912 units, a fall of 66 percent compared to 2015-16, as per data supplied by the Society of India Automobile Manufacturers. The company has five products (two motorcycle and three scooters) which share multiple variants.

In the middle of last year M&M bought legendary British bike brand BSA for Rs 27 crore along with the licence to use the Czech two wheeler brand Jawa. Both the brands are housed under the Classic Legends company, a subsidiary of M&M.

“We have product development work going on for the BSA brand at our Pithampur plant (in Madhya Pradesh). Initial styling and engineering is going on right now on the product,” replied Pawan Goenka, Managing Director, Mahindra & Mahindra to a question posed by Moneycontrol on the sidelines of M&M’s fourth quarter results.

While the domestic utility vehicle business comprising models like Bolero, Scorpio, XUV 500 to name a few did come under pressure last year following increased competition from Maruti Suzuki and Hyundai there was something to cheer for the Mumbai-based company.

Ssangyong Motor Company (SYMC), the South Korean sports utility vehicle specialist, controlled by M&M, returned to profits for the first time in nine years. The consolidated profit after tax for last year for SYMC stood at Rs 245 crore as compared to a consolidated loss of Rs 166 crore in the previous year.

M&M had bought controlling stake in SYMC in 2011 for about USD 450 million. Since then through a number of sustained measures including cost cutting, new model launches and expansion of export markets M&M were able to turn the tide.

This Indo-Korean partnership will witness a number of joint product exercises in the coming years including a fully-electric SUV to be launched in 2020. In addition, there is sharing of platforms, engines and components by the two companies.

In 2016, the SYMC achieved its highest annual sales since 2002 at 155,844 units, up 7.7 percent compared to 2015. SsangYong’s best year is 2002 when the company sold a total of 160,010 units. The Tivoli brand led this significant growth by selling 85,821 vehicles in 2016, up 34.7 percent compared to 2015.