Acquired in 2010, SsangYong has been the troubled unit for M&M almost every year despite several attempts made by the Mumbai-based SUV specialist to turn around operations. M&M hopes to turn the operations profitable by 2022.
Pawan Goenka, Managing Director, M&M said, “The board has agreed for an infusion of 450-500 billion Won of which half will be through equity contribution and the other half will be through a bank loan.”
Goenka met senior executives of a state-run bank in Korea in January to discuss the funding plans that are vital for a stable future of SsangYong. Goenka said SsangYong’s board has approved a five-point plan over the course of next three years aimed at making SsangYong profitable.
“We will reduce the costs significantly this year and next year followed by a breakeven the year after that,” added Goenka. A Rs 320-crore impairment charge at SsangYong was taken by M&M during the December quarter from a total of Rs 600 crore.
A sustained effort of reducing raw material costs, integration of SsangYong into the M&M-Ford alliance exploring new markets such as Russia and Vietnam are part of the five-point plan.
If SsangYong does get integrated into the M&M-Ford alliance Mahindra will be thus able to save on capital expenditure at SsangYong, Goenka added. Through material cost reduction, M&M plans to save 80-90 billion Won.
Of the 500 billion Won, about 300 billion is in fresh funding and the balance is for repayment of the loan, the company informed. When asked if M&M will look at a new investor for SsangYong Goenka said it will depend on what the new investor is putting on the table.
“I don’t think a press meet is right to talk about it. Right now our full focus is on a turnaround of SsangYong and bringing it to profitability by 2022 and provide funding through a bank loan, Mahindra’s own investment and a third party investor. Whether we do that third party investment or not depends on who comes forward and how much is he willing to put in. What we need to take responsibility for is to provide the source for 450-500 billion Won”, added Goenka.
M&M is working with Ford on a couple of SUV projects for India and world markets. Goenka indicated the possibility of involving SsangYong into the projects but he also cautioned that the geographical difference will act as a hindrance as all of SsangYong’s product development happens in Korea.
M&M holds nearly 75 percent stake in SYMC. The maker of Scorpio and XUV brand of vehicles has invested more than $110 million since it first acquired a controlling stake in the loss-making firm nearly a decade ago.
Ssangyong has borne the brunt of the slowdown. In 2019, the carmaker sold a total of 135,235 units, a drop of 5.6 percent as compared to 143,308 units sold in 2018. It sold 107,789 units in the domestic market in 2019 as against 109,140 sold in 2018, as per data released by SYMC.
“There is no significant change expected in the 2020 volumes,” added Goenka.
Ssangyong has struggled with deteriorating earnings result since 2017 when it shifted to a net loss of 66 billion Won from a net profit of 58 billion Won the previous year. In 2018, it’s net losses continued reaching 62 billion Won. Its 2019 losses ballooned to 341 billion Won.
