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MUMBAI : In an attempt to reduce cash burn and prioritize capital allocation to core businesses and other non-core divisions that offer visibility of at least 18% return on equity in the near to mid-term, Mahindra and Mahindra Ltd (M&M) on Tuesday said it has shutdown the Australia-based group company GippsAero Pty Ltd.

In June earlier this year, the company management had exited the US-based electric bike startup GenZe and halted further capital infusion into its ailing Korean subsidiary SsangYong Motor Company (SYMC). Few months ago, M&M pulled back new investments in its American subsidiary, Mahindra Automotive North America or Mana as it did not see adequate returns over the mid-term.

The steps are taken as M&M management continues to evaluate loss making businesses across its core and non-core group companies globally.

“We have shutdown GippsAero. It is up for sale if someone wants to buy it. We have moved to a service model right now and we will continue with the service model to meet the contractual obligations of the planes. But there is no further activity in terms of manufacturing or selling these planes," Anish Shah, deputy managing director and group chief financial officer, M&M told reporters in a media call on November 10.

Melbourne-based GippsAero, which manufactured and sold 8-10 seater aircrafts, is a wholly owned subsidiary of Mahindra Aerospace.

“The shutdown of operations at GippsAero has contributed to our impairments in Q2," Shah said.

In its Q2FY21 earnings, M&M’s profit declined 88% YoY at 162 crore. The sharp decline was recorded on account of exceptional item of 1,149 crore representing the impairment booked for certain long term investments, including Gippsaero.

M&M, however, reported 6% YoY growth in its September quarter revenue at 11,590 crore.

M&M said the company is also reviewing its French subsidiary Peugeot Motorcycles (PMTC), along with other group companies and all necessary calls will be made this fiscal. The company had earlier acquired 51% stake in PMTC in 2015 and later bought the remaining stake last year.

“No call has been taken on Peugeot yet. It is witnessing positive growth in Europe, as people increasingly prefer two-wheelers for personal commutes. The company is also transitioning to electric mobility and has also seen an uptick in sales in China recently," said Rajesh Jejurikar, executive director, auto and farm sectors at M&M.

The company said, meanwhile, it continues to hold discussions with potential investors for stake sale in SYMC as well as with strategic partners for its electric vehicle business, Mahindra Electric Mobility Ltd.

The company sold 89,597 tractors, up 31% YoY in the last quarter on robust rural demand.

“We have lost market share in tractors in Q2 because of stock availability and supply constraints," Jejurikar said, adding that the company had to cut down exports supplies to prioritize the domestic demand through the last quarter.

“With supply constraints getting addressed during Q3, we expect getting into Q4 with adequate stock levels. Post Diwali, we will prioritise export orders too," he added.

Even as the company continues to remain bullish on the sustainability in rural demand, it continues to see uncertainty driving the turnaround in urban demand.

“The turnaround in urban demand may continue to lag especially in the contact-intensive services sectors. Manufacturing capacity utilisation is expected to recover in Q3 and activity to gain some traction from Q4. However, capex and exports are likely to remain subdued," it said in a note.

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