Mahindra & Mahindra (M&M) has undertaken a three-year recovery plan for South Korean subsidiary SsangYong to bring it back into profit after it suffered its biggest loss ever in 2019. The recovery plan will require an investment of 450-500 billion Korean won or $439 million. The Korean subsidiary had suffered a 320 billion won or $280.70-million loss in 2019 which includes 57 billion won or $50-million asset writedown, Pawan Goenka, managing director of M&M, said. The SsangYong board has already appointed a consultant that will help to aggressively reduce the material cost for the next three years (2020-2022), rationalise capital expenditure without affecting the quality of products, bring down personnel cost and create new export markets. Together the measures would help improve operating margins and profitability of the company, Goenka said.
“We see a material cost reduction by 80-90 billion won or $75 million per year for the first two years that will help us improve the operating margins by around 3% by 2022. We will also look at reducing capital expenditure in consultation with Ford Motors, the SsangYong joint venture partner, without affecting the quality of products. The personnel in Korea have also given some suggestions on reduction of personnel costs,” Goenka said. In addition, the automaker has planned to develop new markets over the next two years in Russia and Vietnam to give impetus to SsangYong’s export volumes. “We plan to enter the Vietnam market by the end of 2020 and Russia in 2021,” Goenka said.
The 450-500 billion won funding will be done in two equal parts of debt and equity. The equity component may not necessarily have to be a company’s contribution. There can be a third-party contribution as well, Goenka said.
“The company is already in discussion with various lenders and expects to complete the raising by March 31, 2020. The new loan component will only be 300 billion won as the remainder 200 billion won will go towards loan repayment,” Goenka added. The company does not expect recovery in SsangYong volumes in 2020 from around 130,000 units in 2019 due to global slowdown in the auto industry. However, from next year with new product launches, the company expects the volumes to increase. “There are two products for which SsangYong will work with Mahindra and Ford in this year,” Goenka added.
With regard to coronavirus’ impact on volumes, Goenka said the transition to BS VI was going on as usual, but if the China trade shutdown continues beyond two more weeks, there would be challenge for 4000 BS IV vehicles. “We source two components from China, and if we are not able to import them beyond March 31, we will approach the Supreme Court to provide us extra time to sell our BS IV vehicles under the force majeure clause,” Goenka added.
M&M on Saturday reported a 73% y-o-y drop in consolidated net profit to Rs 380 crore for the October-December quarter of 2019 on account of exceptional item (provision for impairment of investments in SsangYong Motors) of Rs 554 crore.
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