Mumbai: India’s largest and the world’s second largest tractor maker Mahindra and Mahindra Ltd (M&M) announced the formation of its second Chinese venture in an attempt to ride on that country’s increased investments in agriculture and become the world’s No. 1 tractor maker.
Mahindra will spend $26 million (Rs112.3 crore) to acquire a 51% stake in the venture, which will own the tractor-related assets of Jiangsu Yueda Yancheng Tractor Manufacturing Co. Ltd, according to the company’s executive director Bharat Doshi. This will be Mahindra’s second tractor venture in China after Mahindra China Tractor Co. Ltd, a joint venture with Jiangling Motors Co. group.
“For a long time Mahindra group has aspired to become the No. 1 tractor manufacturer in the world,” the company’s vice-chairman, Anand Mahindra, said. “I believe, with our new alliance, we would be able to achieve that goal more rapidly.”
/Content/Videos/2008-08-19/1808 M&M disco_MINT_TV.flv
Deere and Co., makers of John Deere tractors, is the world’s largest tractor maker, and sold 160,000 tractors in calendar 2007. Mahindra’s sales after the new alliance will likely be around 170,000.
Yancheng Tractor sold around 26,000 units last year, Doshi said. Mahindra may eventually consolidate its tractor business in China, he added, without elaborating.
China is the fastest growing market for tractors, and one where consumers are shifting to more powerful tractors, Anjanikumar Choudhari, president of Mahindra’s farm equipment sector, said. Doshi added that Yancheng Tractor had revenues of around $120 million in 2007, and that it made some operating profits.
“Considering that China is having a good agricultural growth and there are similarities in China and India, the deal augurs well for M&M. Moreover, it would also help the company in pushing other products like the utility vehicles in the China market in the forthcoming years,” said Hitesh Kuvelkar, associate director of research with Mumbai-based brokerage First Global.
China has almost doubled spending to support agriculture to 95 billion yuan (Rs60,040 crore) this year in order to feed its rapidly growing population, China’s minister of agriculture Sun Zhengcai had said in May.
Kuvelkar, however, added that China was a difficult market to operate in and that several Indian auto firms operating in the country had not met with much success.
Realizing aspirations: Mahindra and Mahindra vice-chairman Anand Mahindra says he believes the Chinese venture will help the company achieve its goal of becoming the world’s largest tractor manufacturer faster. (Madhu Kapparath / Mint)
That view was echoed by an auto analyst with another Mumbai brokerage who didn’t wish to be named: “They haven’t been able to (do) much with their earlier JV (joint venture) with Jiangling Motors, in which M&M has a 80% stake. I don’t think they would achieve much with this new deal either.” The second analyst added that the deal could help Mahindra compensate for falling sales in the US. Yancheng Tractor is China’s largest exporter of tractors. Last year, of the 26,000 tractors it sold, 8,000 were in the US.
China is the world’s second largest market for tractors after India. In calendar year 2007, China saw the sales of 220,000 tractors (India sold 350,000).
Tractors accounted for almost 35% of the net sales of Mahindra in 2007-08. Shares in the company, also India’s largest maker of sports utility vehicles, fell 3% to Rs567.85 on the Bombay Stock Exchange. The stock has declined 34% this year.
While announcing the venture, vice-chairman Mahindra said his company is not interested in buying General Motors Corp.’s Hummer brand. “There has been a lot of speculation. I want to categorically say we are not pursuing Hummer. Period.”
Reuters and Bloomberg contributed to this story.