Renault-Nissan India beats other newbies on profit track

Written by Roudra Bhattacharya | New Delhi | Updated: Dec 6 2013, 21:29pm hrs
Renault IndiaRenault India posted a Rs 15-crore net profit (Reuters)
A well-defined strategy to first develop India as its export hub and later focus on launches in the domestic market seems to have helped the Renault-Nissan car alliance beat most rivals among the early entrants like Ford, General Motors and Skoda, by posting maiden profits (FY13) in India within a very short period.

Renault Indias latest offering the Duster SUV is not only registering strong volumes but has also given birth to a new segment of compact SUVs.

Nissan Motor India recorded a Rs 312-crore profit in FY13, according to the filing with the Registrar of Companies (RoC), while alliance partner Renault India posted a Rs 15-crore net profit during the same period. While the former has wiped out its accumulated losses of Rs 467 crore by raising short-term funds, the latter continues to have accumulated losses of Rs 345.57 crore.

Sunil Rekhi, CFO for both Renault and Nissans India units, told FE: As a combination of the two companies, we have turned around. Exports have been a bridge till you cross the muddy waters and get volumes in the local market. For Renault, the Duster has done very well; now for Nissan, we are taking positive steps in the domestic market with the launch of Datsun cars from next year. We expect strong growth in domestic volumes going forward.

Renault-Nissan profits

The two companies mentioned above focus on marketing the individual brands and investments for development of new products and tooling at the common plant, while a third company Renault-Nissan Automotive India, invests in and manages production at the Chennai plant which started in 2010. This third company is yet to report a profit because of high initial investments. Together, the three group companies have invested over R4,500 crore for around 4-lakh-unit annual capacity at the plant and the alliance is expected to take its total investment to $5 billion in the next five years.

The break-even comes at a time when Indias 27-lakh passenger vehicle (PV) market is in the midst of an over two-year-long slowdown. Sales between April and October FY14 are down 4.62% at 14.40 lakh units, after posting modest growth of 2.15% in FY13 and 4.66% in FY12. In comparison with Nissan-Renaults success, most foreign carmakers in India like Ford, General Motors, Honda and Skoda posted losses in FY12 and FY13.

In fact, the total accumulated losses of global car makers in India is estimated at around Rs 6,500 crore, as per RoC records and analyst data.

The loss-making foreign carmakers first focused on the domestic market where they found it difficult to match the scales of entrenched incumbents like Maruti Suzuki and Hyundai Motor.

Rekhi added that the big difference had been the focus on exports from the start of setting up the alliance plant. We decided to look at India as an export base. Very few companies, only some like Hyundai, were doing it at the time. We started off with 90% export production, and are now down to 55-60% exports. As we bring in new products, this will evolve more towards production for the local market, Rekhi said.

Though Nissans India arm opened for business in 2005 with cars imported from Japan and Thailand, its business really gathered steam from 2010 when the group plant started operations with its first volume model, the Micra hatch. Renault also started solo operations the same year after exiting a joint venture with Indias utility vehicle major Mahindra to make the Logan compact sedan and launching its own product, the Fluence sedan.

Renault has since seen success with the Duster mini SUV, which is today selling about 5,000 units a month and at peak sold over 6,000 a month before seeing competition from the Ford EcoSport. Meanwhile, Nissan, which has also tasted some success with the Sunny entry sedan, and the recently launched Duster-based Terrano mini SUV, is now gearing up to launch the Datsun sub-brand with the Go hatch next year. Developed for emerging markets like India, Russia and Indonesia, Datsun will be priced lower and target larger volumes.

Between April and October this year, Renaults domestic volumes in India are up 81% at 36,342 units, though Nissans domestic sales are down 26% at 17,400 units. A large part of the groups exports from India models like Nissan Micra (sold as March) and Renault Duster (sold as Dacia Duster) go to Europe.