Mahindra to buy out Renault stake in JV

Mahindra to buy out Renault stake in JV

Mumbai: Mahindra & Mahindra will buy out its partner Renault’s 49% stake in a joint venture that makes and sells the Logan sedan in India, the companies said on Friday.

Renault will continue to support Mahindra and the Logan car through a license agreement and the supply of key components, including the engine and transmission. Mahindra will use Renault’s name and logo till the end of 2010, the companies said in a joint statement.

“I don’t think this is going to be too much of a positive for Mahindra," said Jatin Chawla, analyst at brokerage India Infoline.

“For Renault its obvious ... They were going nowhere with the venture and they have other car ventures in India," Chawla said, who sees the joint venture as “very small" with annual revenue potential of between Rs500 crore and Rs600 crore ($113 million to $135 million).

The joint venture was set up in 2005 with Mahindra, India’s largest utility vehicles and tractor maker, holding 51%.

The no-frills Logan, which met with an enthusiastic response when it was launched in 2007, has suffered dwindling sales as it attracted a factory gate duty of 22% due to its 4 metres-plus length, making it expensive for its target customer segment.

In 2009-10, it sold only 5,332 units, less than half of the 13,423 units it sold in 2008-09 and about a fifth of 25,891 units sold in 2007-08. The venture made a loss of nearly Rs500 crore in 2008-09, which was written off by Mahindra.

Renault is simultaneously pursuing other ventures in India.

Renault and its partner Japan’s Nissan Motor Co, in which it has a 44% stake, are investing Rs4,500 crore over seven years in a manufacturing unit in Chennai, while Nissan will roll out its Micra hatchbacks from the plant in July.

The Renault-Nissan alliance is also partnering Indian two-wheeler maker Bajaj Auto to make a low-cost car.