Around 80% of the Rs 2,719 crore impairments in Q4 came from just two companies – SsangYong and Genze
Nearly a decade after acquiring majority stake, Mahindra & Mahindra (M&M) is ready to cede control of its beleaguered Korean SUV-manufacturing company SsangYong Motor Company (SYMC) after having failed to turnaround the subsidiary.
SYMC is one of the several loss-making subsidiaries, which will be under the M&M board’s scanner, that will warrant some strategic decisions in the near future, senior executives talking to the media post the March quarter announcement said.
When asked if M&M is contemplating ceding control of SYMC, Pawan Goenka, Managing Director, M&M, said, “Yes, absolutely.” M&M, however, is ready to continue as a shareholder in SYMC. The Mumbai-based company has been scouting for a partner since the start of 2020.
“SYMC needs a new investor and we are working on that. There is no specific plan of exiting the company. We don’t remain the largest shareholder if a new investor takes over our stake,” Goenka added.
“About 80 percent of the Rs 2,719 crore impairments in Q4 was from just two companies – SYMC and Genze. We will not cut capex in any of our key future products. We have taken some tough calls on capital allocations on businesses we are not supporting or getting out of,” Geonka stated.
In April, the M&M board declined to inject any more funds in to SYMC after the Korean company sought an infusion of $406 million. Since then, SYMC has liquidated some non-core assets to generate working capital while keep costs down.
“M&M invested 40 billion Korean Won in SYMC and it has managed this quarter quite well despite the slowdown. They have been able to significantly reduce their expenses. We are looking at potential investors in SYMC," Goenka said.
The other loss-making company where M&M has taken action is the electric two-wheeler company in the US. That US subsidiary manufactures electric scooter under the brand Genze. The latter was being tested for the Indian market as well, but the cost structure was proving to be prohibitively high, as per M&M.
“We have been struggling in the two-wheeler business for some time in terms of volumes for electric bikes and electric scooters. We have now made a decision to shut down that business in three-to-six months and we are right now liquidating all the stocks that we have,” Goenka added.
Besides the electric two-wheeler business, M&M also has commercial vehicle and an off-highway four-wheeled vehicle operation in the US, which is sold under the brand Roxor.
“Roxor or MANA (Mahindra Automotive North America) as a loss-making international subsidiary is very much under our scanner as are all the international loss-making subsidiaries. If there isn’t any clear path to profitability in a reasonable timeframe, then we will be taking action on the business as well. At this point in time, it is going through a detailed analysis. Over the next 12 months, we will complete that for all the businesses and then we will have a final call on which ones should we stay and which ones we should exit based on capital allocation,” said Anish Shah, Deputy Managing Director and CFO, M&M.The company is cutting back on capital expenditure by 10-15 percent for FY21 than earlier planned. “In FY21, there will be some reduction in capex, but they won’t be significant because we have three key programmes which are core to the SUV strategy. We have rationalised capex by 10-15 percent than our original plans. In the next cycle of FY22-24, we would see a Rs 3,000 crore reduction in capex,” Rajesh Jejurikar, Executive Director, M&M, said.