Current funding will take care of SsangYong’s capital expenditure needs for the next three-to-four years
SsangYong Motor Company, the South Korean unit of utility vehicle specialist Mahindra & Mahindra (M&M), will invest 1 trillion Korean won (about $1 billion) to fund its appetite for new models.
Under M&M, SsangYong (SYMC) has already invested more than 1 trillion Korean won since its acquisition in 2011. Current funding will take care of its capital expenditure needs for the next three-to-four years, a senior M&M executive confirmed.
Pawan Goenka, Managing Director, M&M and Chairman of SYMC, said, “SYMC has heavily invested in product development. We (SYMC) have so far invested more than 1 trillion Korean won, which is roughly $1 billion. We plan to invest another 1 trillion Korean won over the next three-to-four years. That is another $1 billion.”
M&M holds 74.65 percent stake in the South Korean unit.
Last year, SYMC climbed to the third spot (in sales) in South Korea for the first time since 2013, beating Renault Samsung. It clocked a sales growth of two percent year-on-year (YoY) to 109,140 units and controlled 7.1 percent of the domestic market.
For 2018, SYMC reported a 0.3 percent YoY fall to 143,309 units in total sales (South Korea+exports). Exports fell eight percent last year. Brand SsangYong exited India when M&M launched the next generation Rexton G4 - a model from the South Korean stable - as Mahindra Alturas G4.
Last year, M&M said an investment of about 1.3 trillion Korean won (about Rs 8,500 crore) would be met by capital generated by SYMC itself. But M&M realised that the South Korean entity would be falling short of total requirements given mounting losses.
“We have seen flat volumes and EBITDA margin rise to about 4 percent in 2018 from about 3 percent in 2017. Profit before tax losses reduced by around Rs 100 crore. Volume target for SYMC for 2019 is 163,000, a growth of 14 percent,” Goenka stated.
After registering a profit for the first time in 2016 since its acquisition, SYMC slipped into losses for the next two consecutive years: 2017 and 2018. Annual consolidated loss at SYMC stood at 61.8 billion Korean won in 2018 versus 71.9 billion Korean won in 2017.
“There is significant internal fund generation because of working capital management. SYMC have been generating 150-200 billion Korean won every year. However, we will be falling short of our total investment needed for product development. There was a need for about 100 billion Korean won. We decided to infuse 50 billion Korean won as equity from M&M and another 50 billion Korean won will be borrowed over time to fund product development capex,” Goenka said.
In January, SYMC launched the pickup version of the Rexton SUV: Rexton Sports Khan. The next generation version of the Korando C SUV debuted at the Geneva Motor Show in the first week of March and will go on sale shortly. An updated version of the Tivoli will be launched in the first half of 2019.
The new investments are also earmarked for the setting up of an assembly facility (CKD) in Brazil and development of new engines, connected car and electric vehicle technology. M&M holds 72 percent in the Korean company.
“There will be a new product launch that will happen between June and July next year and another product launch after one year. Each product costs about 300 billion Korean won. Also, there are expenditures on refreshes and meeting emission norms, which are same as European emission norms,” added Goenka.SYMC is targeting 2020 as the debut year for electric vehicles. The first of such vehicles to go all-electric will be the compact SUV Tivoli.