Indian auto major Mahindra & Mahindra (M&M) has decided to buy out Navistar International Corp's stake in Mahindra Navistar Automotives Ltd (MNAL) and Mahindra Navistar Engines Pvt Ltd (MNEPL) for about Rs. 175 crore. M&M has a 51 per cent stake in the Joint Ventures (JVs), whereas Navistar holds the remaining 49 per cent. After this buyout, both the JV firms will become fully owned subsidiaries of M&M.
The above deal needs to be concluded on the basis of comprehensive agreements, and is expected to be formally completed by the beginning of 2013. Commenting on the change, Troy Clarke, President and Chief Operating Officer at Navistar said, “While the Indian market has not expanded as we had originally expected and industry challenges there continue in the near term, we still see promise in India.”
Though M&M will continue selling MNAL and MNEPL products, the only change that takes place is it will now be completely owning the operations. Navistar would still be sourcing components from India, and M&M will continue providing engineering services to Navistar. Both companies have not explained the reasons behind the buyout, but experts believe that the JVs were not able to meet the expected demand of commercial vehicles, despite being in the market for three years. Also, due to the current slump for heavy trucks in the domestic market, M&M is not expected to break even in MNAL.
MNAL was formed in 2005, while MNEPL was formed in 2007, and it starting producing engines in 2010. MNAL's truck facility was built at a cost of Rs. 1000 crore, excluding land cost, and is capable of producing 50,000 units a year. MNEPL has been built with an investment of Rs. 350 crore and can produce 45,000 engines a year. It has been thirty months since the first Mahindra Navistar truck rolled out of the Chakan facility in Pune.
A renewal of thrust is currently being experienced in the domestic commercial vehicle market, not just by Indian players but foreign players as well. At present, Indian commercial vehicle segment features several big automobile firms like, Tata Motors, VE Commercial Vehicles, Ashok Leyland, along with foreign players such as Daimler (Bharat-Benz), Scania and MAN.
