M&M open to M&A with non-SUV firms

As part of its aggressive growth strategy, which has included the acquisition of SsangYong and Reva, Mahindra & Mahindra (M&M) is open to acquiring an automobile company that may not be in the SUV space. Speaking to Autocar Professional,

Dr Pawan Goenka, president – automotive and farm equipment sectors, said: “A strategic fit doesn’t mean it has to be an SUV maker. A strategic fit may come in different ways like technology, distribution, infrastructure, and assets as well.”

Goenka’s response was to a query on the reported interest his company has in buying bankrupt Swedish car company, Saab. “The most important thing for us to consider is what can we do that others before us weren’t able to do to turnaround a company,” said Dr Goenka.

While any inorganic move in its automotive business typically attracts a lot of attention, M&M’s mergers and acquisition team may also be working on some opportunities in the tractor space. The company had earlier acquired Punjab Tractors and the Chinese tractor company, Jiangling Tractors, in 2004. There are a few “distress assets” which could attract serious interest from M&M, according to a source.

At present what is keeping Mahindra busy is the tremendous response to the XUV500. The flagship SUV has attracted over 25,000 applications in the second round of bookings. This has made M&M contemplate raising the XUV500’s monthly production capacity to 5,000 units. This increased capacity could come online by August and will entail an additional investment of around Rs 100 crore. M&M initially started with 2,000 units and then increased it to 3,000 at the Chakan plant.

Last month, the company cleared the bookings of all but the all-wheel-drive (AWD) variant it received in the first round of booking. Due to the more-than-expected demand for the AWD variant, M&M did not accept any bookings for this variant in the second phase. M&M had budgeted production for five percent of the total demand, but 35 percent of bookings received in the first phase were for the AWD variant.

Dr Goenka had earlier said that M&M will “cover the entire range of SUVs that is there to offer”. Currently, the Bolero is the cheapest at a little over Rs 6 lakh. Come Diwali, and the entry price point into the Mahindra brand will get lower with the launch of a ‘low-cost’ SUV. Before the ‘low cost’ SUV hits the market, an improved version of the 4x4 Thar is likely to hit the market. This ‘improved’ version will come with a factory-fitted air-conditioning system and better quality interiors.

INTERVIEW WITH DR PAWAN GOENKA

With the Union Budget around the corner, what is your expectation as far as taxation on diesel cars goes?

We have two concerns. One is whether or not Cenvat will go up from 10 percent to 12 percent. We don’t like it but it’s for the government to take a holistic view on that. For us what matters is the tax on vehicles. This proposal has originated from the petroleum ministry, which seems odd. It needs to ensure that the diesel price should be right. If it wants to increase diesel prices because it cannot sustain the subsidy burden, then it should do that but to talk about losing revenue because diesel is being used for passenger vehicles is misguided.

Why do you think it’s misguided?

Firstly, only two percent of diesel that is consumed is by personal passenger vehicles. So if you do something just for two percent, will you make a difference in terms of the recovery in revenues? Secondly, if you levy a diesel vehicle tax, it will impact demand for diesel vehicles. This won’t boost petrol vehicle sales because not all vehicles come in both petrol and diesel variants. So it’s not that if you have a higher diesel tax, you start buying petrol-engined SUVs. Diesel demand is going up not only because the price difference but it’s also due to very good diesel vehicles available in the market which are clean, fuel-efficient and a pleasure to drive. Diesel has 15-20 percent carbon dioxide. So, on one hand we are talking about carbon footprint reduction and on the other, you discourage diesel usage. Theoretically, if all diesel vehicles are converted to petrol, our energy bills will go as high as Rs 5,000 crore a year. There is also a separate calculation which says a Rs 80,000 tax on a diesel vehicle is equal to putting 75 paisa more on pricing of diesel fuel. I don’t know what is that difference in 75 paisa. So one has to believe in market pricing to have the least number of subsidies. Gradually, we need to increase diesel prices.

Is the industry is ready to debate?

Certainly. My only contention is that this should be the prerogative of the finance ministry but my greater concern is that the decision be based on authentic data.

Finally, how will an FTA with Europe affect home-grown Indian OEMs?

This is a passionate topic and there are very strong views against and for. My view has been against this duty for European CBU imports. How do you justify 30 percent lower duty of import from the EU as opposed to imports from Korea or Japan, for example? There would likely be tremendous pressure to come from other countries.

In effect, we are lowering the CBU duty from 60 percent to 30 percent. A Euro FTA will be a contrast to the earlier decision of hiking the CKD duty to increase local production in India.

SUMANTRA BAROOAH