M&M in final stages of Ssangyong buy

M&M in final stages of Ssangyong buy

New Delhi:Mahindra & Mahindra inched closer to establish its presence in southeast Asia, with an executive saying the company will make full payment by 7 February for South Korea’s Ssangyong Motor buy.

Mahindra, India’s largest utility vehicles maker with its flagship Scorpio and popular Xylo, in 2010 agreed to buy money-losing Ssangyong for $468.4 million.

The deal gives Mahindra access to advanced technologies and a foothold in the southeast Asian market from where it can launch its global ambitions.

But, investors have been cautious about the major turnaround at Ssangyong, an SUV maker that has been under court-led restructuring since February 2009 as the global recession hit car sales.

Mahindra’s president for automotive sector Pawan Goenka downplayed the fears saying Ssangyong is “more or less" EBITDA neutral, and it more than doubled its sales in 2010.

Ssangyong sold 81,800 vehicles in 2010, compared with 35,300 in 2009, Goenka said on Tuesday.

On Friday, Ssangyong got final approval from its creditors for an amended rehabilitation plans, paving the way for Mahindra to go ahead with its buyout plans, Goenka said.

“We expect the court to completely withdraw by end of March. We will have full management control thereafter."

The new board of Ssangyong, which will be announced in two weeks, will have a Korean head and will continue to operate independently, Goenka added.

“In a sense, it is like an alliance. We work in tandem, but there is no loss of identity."

Goenka said Mahindra will launch two Ssangyong models in India by 2011, but the two car makers will not do research and development together.

“There will be efforts made to synergise. But there is no plan whatsoever to combine the functions of the two," Goenka said, adding there would be no downsizing at Ssangyong.

Over the past two years, Mahindra has been on a diversification spree through acquisitions and joint ventures, entering the heavy, medium and small trucks segment where Tata Motors is the leader and into the two-wheeler market with ambitions of making scooters and motorcycles.

In April 2010, Mahindra took over the sales of the no-frills Logan sedan in India by buying out the stake of French partner Renault , and a month later agreed to buy a majority stake in India’s electric vehicle maker Reva.

Moderating growth

Mahindra & Mahindra, which commands as much as half of India’s utility vehicle market share, posted a 22% rise in vehicle sales for January, in line with other Asian car makers, to get off to a strong start for 2011.

Auto sales in India grew a record 31% in 2010, driven by a burgeoning middle class in Asia’s third-largest economy, but tougher comparisons, possible rise in interest rate amid surging inflation, and rising fuel and vehicle costs are expected to slow sales growth in 2011.

Goenka said Mahindra will launch 8-10 “substantially new" models by the end of the next financial year in March 2012, which will include a premium sports utility vehicle.

Indian auto sales are expected to moderate this year, pegged at 12 to 15 % by Fitch Ratings and other analysts. That growth rate is more in line with the US auto market, which is the world’s second-largest and grew 11% in 2010, snapping a four-year decline.

“We expect growth rate to moderate in FY12," Goenka said.

Mahindra shares, valued at about $9.8 billion, closed down 0.98% at 705.05 , in the Bombay Stock Exchange that fell 1.67%. The BSE auto index shed 2.83%.