M&M hikes capex by more than 100%2 min read . Updated: 21 Feb 2012, 11:30 PM IST
M&M hikes capex by more than 100%
M&M hikes capex by more than 100%
New Delhi: Automaker Mahindra and Mahindra Ltd (M&M) has decided to more than double its capital expenditure for the next three years, and double its capacity in the process, to launch a bevy of products in India and abroad.
India’s top utility vehicle maker plans to make a fresh investment of at least ₹ 4,000 crore to drive its growth.
“While our current models have a waiting period, there are a lot of new products in the pipeline," said Pawan Goenka, president (automotive), M&M. “We will have to double our capacity to 500,000 units in another two to three years."
The investments will be on top of the ₹ 5,000 crore M&M had agreed to invest in Maharashtra till 2013 under a memorandum of understanding signed in 2009.
M&M may also start assembling its utility vehicles in Russia within two years.
“We may utilize the services of a company that currently assembles and distributes sports utility vehicles of Ssangyong to build our own vehicles in Russia," Goenka said. “Talks are at a very initial stage and we are in the process of deciding the products to be assembled there."
M&M acquired a majority stake in South Korea’s Ssangyong Motor Co. in 2010. Russia is the biggest market for Ssangyong outside Korea and holds potential for M&M as well, said Goenka, who is also the chairman of SsangYong, while declining to disclose the identity of the Russian distributor.
But even as it is looking to ramp up capacity, M&M is contemplating moving its manufacturing operations out of Maharashtra if the state government does not withdraw a notification that restricts the benefits of value-added tax (VAT) refunds to auto makers.
“So far, the plan is to invest and expand at our Chakan facility but if the Maharashtra government does not do it immediately, we will be forced to look out for other options," Goenka said. “We are in talks with other states and we would require fresh capacity on an urgent basis... say in a month or two."
M&M’s four plants in Maharashtra produce utility vehicles and passenger cars.
In February last year, the Maharashtra government decided that auto firms cannot claim a full refund on the VAT they pay if their products are ultimately sold outside the state. The state government made it clear that sales to distributors and sales arms of auto makers based in Maharashtra will not be considered as sales within the state.
It is fair on the part of the state government but its stand has put pressure on the margins of the auto companies based in Maharashtra, said an analyst with a brokerage, declining to be identified.
“Margins of M&M in particular are looking depressed. There has been an impact of 1-1/2% ," said the analyst. “Actually, the Maharashtra government has not denied the full refund. Instead of refunding 12% VAT, the government says it will refund only 2%."
Initially, the VAT refund scheme of the state government could have saved M&M at least ₹ 3,000-4,000 crore in 10-12 years, the analyst said.
“But what actually happened (was) that these companies started consuming those incentives faster and showed their sales to distributors and sales arms of auto makers as sales within the state," he said. “Now the government just wants to slow down the process."