Mahindra & Mahindra (M&M) has drawn a 450-500 billion Korean won (Rs. 2700-3000 crore) blueprint for turning around its Korean subsidiary SsangYong, which till the first half of 2019 was on track to break-even but took a u-turn in the second half. The reasons cited by M&M are global economic slowdown, decline in exports and change in fuel preference of customers.
The fuel trend impacted the company as SsangYong, similar to M&M, had a large portfolio of diesel vehicles. The development did have a temporary impact on the company before it could get corrected as now about 50 percent of its sales come from sales of petrol vehicles. Additionally, one more reason for SsangYong's dwindling fortune was that there was significant reduction in exports to 4-5 top markets such as Iran, Chile, Egypt and Western Europe due to geopolitical dynamics. The executives added that above developments collectively led to SsangYong witnessing its worst-ever loss of 320 billion Korean won ($270 million).
Making realistic expectations about the turnaround Dr. Pawan Goenka, MD, M&M said, "Clearly from where we are, it is not going to be possible to turn profitable this year, that is not realistic. There is work that needs to be done”. The company expects to turn profitable by 2022. Towards that objective the company has drafted a three-year turnaround plan.
Company executives hopes to get the turnaround plan financed half from equity and rest from bank loans. The company is also looking for third party investments. The company expects the financial arrangements to get completed by March this year and is therefore said to be in talks with various banks and international financial institutions.
SsangYong, Korea’s fourth largest automotive company, saw its losses deepen to $130 million in December financial quarter as compared to a year ago period. The speculation about its financial health led to the rumor mills working overtime as the company management reportedly postponed its scheduled board meeting three times before releasing the earning results.
M&M has already stitched together a three-year long plan for moving SsangYong out of the red. The company lists 4 focus areas to achieve a turnaround. First and foremost is to bring down material costs and save at least $75-80 million annually. The step will help the company gain around 3 percent improvement in its operating profit margin.