Ssangyong Motor faces turnaround turbulence

Between 2011 and 2014, the company piled up losses of Rs 1,290 crore

By: | Updated: March 20, 2016 8:48 PM

When Mahindra and Mahindra (M&M) acquired a majority 72.85% stake in South Korean auto player Ssangyong Motor in March 2011, it was hopeful it could turn around the loss-making company soon.  But five years down the line, Ssangyong isn't yet out of the woods.

Between 2011 and 2014, the South Korean automobile manufacturer has piled up losses of Rs 1,290 crore though in the three months to September they were small at Rs 150.64 crore, on the back of flat revenues of Rs 4,550 crore and a loss of 29 million won resulting from forex hedges.

To be fair the company didn't do badly operationally — operating profit came in at Rs 191.78 crore, compared to a loss of Rs 21.12 crore in Q3 CY14, driven up by sales of the Tivoli.

Against the backdrop of a global slowdown, it's not going to be easy to get back on track. Ssangyong’s market share in South Korea isn't growing meaningfully; in November, the company’s sales in the South Korean market rose by 56.1% y-o-y to 9,062 units. But exports, which drive a significant portion of the revenues, plunged 20.1% y-o-y to 3,353 units. In 2014 exports dipped 11.83% y-o-y to 72,011 units.

Demand in the key markets of Russia, where the currency has lost almost half its value, and China, where the economy is slowing down, has been dull. In a conversation with sector analysts earlier this year, VS Parthasarathy, group CFO, had pointed out that the Russian market, which accounted for almost half of Ssangyong's exports at one time, had all but collapsed. Moreover, the China market had slowed down significantly.

However, he was fairly confident that with an investment of $900 million, over four to five years, aimed at creating new products and markets would help achieve break-even volumes. The Tivoli—a compact SUV and the first vehicle launch since the acquisition—has sold 43,000 units in the first nine months of 2015. The vehicle has potential and sales could hit 100,000 units by 2016, helping boost the bottomline.

Gr2

This is probably why Choi Johng-sik, CEO of Ssangyong Motor, had noted in November that the sales of the Tivoli, which has led the compact SUV market, will continue to grow and Ssangyong will focus all its resources on increasing supply of the vehicle. “Based on the Tivoli and the Euro 6 models, we will do our best to achieve this year’s domestic sales goal of 100,000 units,” he added.

The South Korean automobile maker also manufactures UVs like Korando C, Rexton, Kyron, Rodius, Actyon and a sedan. Among all these vehicles, only Rexton is available in India at a price of Rs 20.14 lakh. Volumes of the Rexton in the Indian market during the April to October period decreased 75.27% y-o-y to 179 units.

Before the launch of Tivoli, Korando C was the most popular UV from the Ssangyong stable both in the domestic and export market as the company sold 59,706 units of the vehicle in 2014.

Ssangyong’s volumes in the South Korean market in the first nine months of 2015 (January-October) surged 39.8% y-o-y to 69,243 units compared to the corresponding period last year, which is the highest sales since 2004, when the company sold 75,669 vehicles in the first three quarters.

This year despite difficulties in overseas markets, he expected the company would achieve a turnaround in 2016 and hopes to sell 170,000 to 180,000 units as per an investor report available on the website of the company.

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