New Delhi: Three months after it pulled out of a three-way agreement to jointly invest in a manufacturing facility with international vehicle makers Renault SA and Nissan Motor Co. in Tamil Nadu, Mahindra and Mahindra Ltd, the country’s largest tractor maker, said it will build its own new factory in the state to make 50,000 tractors a year.
“We are in talks with the Chennai government to allocate us land for the expansion of our automotive business,” said Pawan Goenka, president (automotive) of the company.
Mahindra recently got board approval to raise Rs700 crore in private placement from Goldman Sachs’ unit Golboot Holdings Ltd, and said it will invest the amount in its auto and tractor businesses.
Mahindra had earlier tied up with Nissan and Renault to jointly build a Rs4,000 crore factory in Chennai in which it would have had a 50% stake and where it would make utility vehicles as well as tractors. Some 11 months after it inked the pact, Mahindra said it preferred to shift its investment to Chakan in Pune, where it has existing facilities.
While the Tamil Nadu government had agreed to allot 1,100 acres for the original joint venture, Nissan and Renault are using up only 670 acres. Mahindra did not say definitely whether the tractor factory would come up in the remainder of the land that isn’t getting used up. Goenka said it was “one of the options”.
He wouldn’t reveal how much his firm would spend on building the factory, but said that, “tractor plants do not have anywhere near the same investment as automotive (car or truck making) plants.”
A tractor plant that makes 50,000 units a year could cost up to Rs300 crore. In comparison, a car making factory that rolls out 50,000 units a year could cost up to Rs700 crore, a sum which Mahindra and Renault invested for the Logan model, which they jointly make in Pune.
Mahindra has an annual tractor making capacity of 200,000 units after it acquired smaller rival Punjab Tractors Ltd a year ago. The new plant at Chennai will increase its capacity by one-fifth to 250,000 units a year, almost thrice that of its nearest rival Tractors and Farm Equipment Ltd. India’s tractor market is estimated at 350,000 units a year.
Chennai, which is the Indian production base for car makers such as Hyundai Motor Co. and Ford Motor Co., is competing with the country’s other two auto hubs of Pune and Gurgaon to attract more investment. The Tamil Nadu government is offering incentives such as concessional land allotment and tax exemption to woo automobile companies. Consequently, Hyundai and Ford are increasing their capacities, while Nissan is set to build a commercial vehicle factory with Ashok Leyland Ltd, the country’s second largest truck maker.
Mahindra has announced that it would invest Rs1,500 crore in Chakan, on the outskirts of Pune, to make commercial vehicles and passenger vehicles. This will be in addition to a previously earmarked Rs2,500 crore.