Recently we got the news that Navistar is planning to sell its stake of Mahindra Navistar Automotive Ltd. at 175 crore to the entity itself, now we also got that M&M is allocating three years to Navistar to churn out profit from the loss making venture.
The JV of trucks between M&M and Navistar had seen an investment of 1,066 crore. Out of which M&M invested 520 crore and Navistar contributed 546 crore. Due to the poor sales, i.e of 6,000 units in the last two and a half year, JV Mahindra Navistar suffered a loss of 692 crores.
In spite of suffering heavy loss from the JV, M&M says it is committed to the venture and will pump more 200-300 crore to get the positive figures.
On a call with the equity analysts, Pawan Goenka, President, automotive & farm equipment sector, M&M said “The board has given us three years to turn around the business. We will not be buying back the stake, if it did not make sense.”
He also said that selling a truck is far tougher than selling a car. You need to convince the customer completely. And that’s not it; one has to go into the micro marketing as well. In the present scenario, it has become more difficult to convince customers of the leading brands, because they are offering bulk discounts on the products. The downturn in the economic conditions has added difficulties on the path.
Regarding the buyout, Mahindra will give the 175 crore to Navistar in two parts. First part will be consisting of 2/3rd of the total amount and the remaining 1/3rd will be given after five years. The payment will take place only after the regulatory approvals.
The buyout will also allow M&M to get full technical support from Navistar in the future. Post the buyout, M&M will sell the trucks by slapping its own logo on all of them.