Utility vehicle maker Mahindra & Mahindra plans to purchase US-based Navistar International Corp's stake in their Indian joint ventures Mahindra Navistar Automotives and Mahindra Navistar Engines. As per the terms, M&M will have to pay about Rs 175 crore or USD 33 million for Navistar Group's stake in both ventures.
The agreement allows Navistar to continue sourcing components from India while M&M would continue to provide engineering services to Navistar, the two companies said on Tuesday. Navistar group would continue to support M&M through a license agreement and extend necessary support to Mahindra Navistar Automotives and Mahindra Navistar Engines for business continuity.
"As part of its "Drive to Deliver" turnaround plan launched in August, Navistar has been conducting an analysis of all of its businesses and programs to determine their return on invested capital (ROIC) and identify areas for improvement. Based on this business environment, Navistar has determined that it needs to redirect its efforts to other initiatives that more quickly contribute to the company's goal to improve its ROIC," Navistar said.
Navistar and Mahindra entered into a joint venture in late 2005 to manufacture trucks and buses in India, source components and provide engineering services for the design and development of Navistar vehicles. The engines joint venture was formed in 2007 and began producing engines in 2010.
"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 going forward. But given Navistar's 2013 priorities, our capital and focus needs to be allocated to other business opportunities in the near term," said Troy Clarke, president and chief operating officer, Navistar
The overall sluggish demand for meidum and heavy trucks in India has hit the joint venture too. So far this financial year (April-Nov), Mahindra Navistar has sold 7,904 units, down 7 percent year-on-year.
"Mahindra Navistar has set up a world class dealer and service network for trucks, which coupled with synergies with Mahindra's dealer network gives us a significant opportunity to grow our presence in the truck market...M&M is committed to the success of the truck business," said Dr Pawan Goenka, M&M's president, automotive and farm equipment sector.
This is not the first time that M&M has bought out a joint venture partner. In 2010, Mahindra had bought the stake of French car maker Renault in the joint venture firm Mahindra Renault, over differences over the production of the entry level sedan Logan. Since then, Mahindra has refreshed and rebranded the Logan and sells it as the Verito. Renault has entered India as a separate entity and sells products like the Duster SUV, Pulse hatchback and Scala sedan.
M&M shares were up 1.1 percent at Rs 970.60 on NSE in afternoon trade. The stock hit a 52-week high of Rs 973.50, earlier in the day.
Nachiket Kelkar
nachiket.kelkar@network18online.com
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