Mahindra & Mahindra mulling Brazil plant to bypass new tax barriers

Written by Roudra Bhattacharya | New Delhi | Updated: Jun 18 2014, 16:38pm hrs
MahindraMahindra sells UVs, LCVs in around 40 markets across Europe, Latin America and Africa
Mahindra & Mahindra (M&M), the countrys largest utility vehicle maker, is considering building a manufacturing plant in Brazil to get around tariff barriers recently introduced by the South American country, Pawan Goenka, executive director and president (automotive business), told FE.

Announced in late 2012 and effective till 2017, Brazils Inovar-Auto incentive programme offers tax sops for automakers sourcing parts indigenously and promoting local product development. It has made imports from countries like India uncompetitive. Among domestic firms, M&M has the largest presence in Brazil it sells two products in Brazil, the Scorpio SUV and pick-up, both of which are assembled by its local partner Bramont at a plant in Manaus.

Brazil has put in some kind of a taxation on companies not doing enough local R&D and value addition. In some sense, it is a tax barrier and makes our products uncompetitive. Those who have manufacturing plants with a fair level of vertical integration are okay, but those who do not have a plant in Brazil or have a very small level of localisation are affected, Goenka said.

He added, Brazil is a good market and something we are seriously looking at. We need to look at how to work with Inovar. For this, we will have to set up local manufacturing in Brazil and we will likely look at other locations. It is not in the immediate plans yet, so there is no decision on it right now.

With a market size of 2.8 million (2013), Brazil is the seventh-largest car market in the world, right behind India. M&Ms new strategy for Brazil is yet to be finalised, but any new plant will likely be closer to the major markets of Sao Paolo and Rio de Janeiro in order to also reduce logistical costs.

We are looking at our options. Right now the business model was around doing local assembly in Manaus. Manaus has it own set of problems because of its location it is in the middle of the Amazon jungle and the markets are very far from it. In Manaus, we also do not have enough localisation to meet the requirements of the Inovar, Goenka said.

M&M currently sells its products like the XUV500, Scorpio and Quanto utility vehicles and the Maxximo LCV across 40 markets in Europe, Latin America and Africa. The company operates its own sales outfits in South Africa, Italy and Australia, while depending on distribution partners in other markets. Egypt and Brazil are the only two markets where M&Ms local partners have a facility to assemble vehicles.

In FY14, M&Ms volumes fell 8% to 2.54 lakh units as diesel car demand dipped on the back of rising fuel prices and increase in the excise duty on SUVs. Exports in the fiscal, however, were up 23% to 7,599 units.

The M&M scrip on the BSE closed 1.66% down at Rs 1,180.80 on Tuesday in a firm market.