Nearly five years after continuously absorbing losses in Europe’s premium two-wheeler maker Peugeot Motorcycles (PMTC), its chief promoter Mahindra & Mahindra (M&M) has kick-started the plan to generate profits from the troubled buyout.
A senior M&M official said that the cost-saving measures taken by PMTC in 2018 and 2019 would start resulting into positive earnings. These measures include a restructuring exercise of manpower that resulted in the lay-off of one-fifth of PMTC’s workforce. M&M owns 51 percent stake in PMTC which it bought for Rs 216 crore.
Talking to analysts Pawan Goenka, Managing Director - M&M, said, “I truly believe that the worst is behind us (for PMTC). We had done a major restructuring of manpower at our plant in Mandeure, France and that has been successfully completed. That was a one-time cost incurred and that will then lead to cost reduction in future years.”
In July 2018, a ‘rightsizing plan’ was initiated at PMTC providing for the departure of 102 employees. For this reason, the 2018 annual accounts present an extraordinary charges of 831,000 Euro, made of fees, and an accrual of 11.10 million Euro for estimated costs of this departure plan. PMTC had nearly 500 employees before the plan had been initiated.
The “rightsizing” of workforce at PMTC follows the biggest single-year loss recorded by it since the takeover by M&M. In 2018, PMTC’s loss ballooned to 36.33 million Euro (Rs 288 crore), a jump of 70 percent over 2017 which was 21.36 million Euro (Rs 169 crore).
The cumulative loss at PMTC since the takeover in 2015 stands at 129 million Euro (Rs 1,735 crore).
As a part of corrective measures by M&M to cut down on losses, the company has started the manufacturing and exports of a Peugeot-branded electric scooter to Europe from its factory in Madhya Pradesh. The scooter is a product of the 11.77 million Euros (Rs 100 crore) of investment that M&M made towards the new product development.
“We have invested a lot in product development including an electric scooter which is developed and manufactured in India before being shipped to Europe. The first shipment has started and we are just about starting that cycle. So we believe that in about a year’s time we would probably get to an EBITDA positive situation,” added Goenka.
Peugeot has a number of two- and three-wheeler scooters powered by engines starting as small as 50cc and going up to 400cc. These are sold in European countries such as Spain, Germany, Italy, Portugal and Finland, as well as those in Africa and Asia. M&M has refrained from bringing Peugeot scooters to India due to their high costs.
“Given that two-wheelers are coming somewhat in fashion, I think it bodes well for PMTC business and Peugeot brand becoming stronger in Europe. I must admit it has been a difficult business up to now but the worst is behind us,” added Goenka.
PMTC is one of the three distinct two-wheeler portfolios of Mahindra Two Wheeler. The other two units are Classic Legends under which Jawa, BSA and Yezdi brands fall and Mahindra’s own branded two-wheelers with products like Mojo and Gusto.