Mahindra targets SsangYong turnaround by 2022, plans USD 430 mn capex
SsangYong has been struggling with deteriorating earnings since 2017 when it slipped into the red with a net loss of 66 billion wons as against a net profit of 58 billion wons in 2016. In 2018, its net loss rose to 62 billion wons and then ballooned to 341 billion wons in 2019.
Mahindra Group is in talks with Korean banks to arrange around 500 billion wons (USD 430 million) to fund fresh capex for its loss-making Korean subsidiary SsangYong and does not mind roping in a third-party investor as it targets to make the struggling unit profitable by 2022.
Mahindra acquired the loss-making SsangYong in 2010 but failed to turn it around since then despite several attempts.
M&M holds nearly 75 per cent in the Korean company now and has since acquisition invested over USD 110 million.
SsangYong has been struggling with deteriorating earnings since 2017 when it slipped into the red with a net loss of 66 billion wons as against a net profit of 58 billion wons in 2016. In 2018, its net loss rose to 62 billion wons and then ballooned to 341 billion wons in 2019.
However, the company is cash-positive now from an operational angel now, a Mahindra official told reporters on Tuesday.
It can be noted that one major reason for the massive 85 percent plunge in net income at Rs 200 crore in the December quarter was because M&M took a Rs 320-crore impairment charge on SsangYong.
Mahindra sells two SsangYong SUvs in the country-the Rexton and the Tivoli.
"We are in talks with banks for around 500 billion wons to fund our capex for SsangYong. Of this, fresh capex will be around 300 million wons and the rest will be used to retire the existing debt," Mahindra & Mahindra managing director Pawan Goenka said.
The board has agreed for an infusion of 450-500 billion wons of which half will be through equity contribution and the other half will be through a bank loan and "we hope to achieve financial closure by the end of March," Goenka added.
When asked if they will look for a new investor for SsangYong, Goenka said it depends on what the new investor is putting on the table.
"Right now our focus is on turning around SsangYong and bring it to profitability by 2022 and provide funding through a bank loan, Mahindra's own investment arm and if possible 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 around 500 billion won", Goenka explained.
He also said the SsangYong board has approved a five-point plan over the course of next three years aimed at making it profitable.
On the 2022 turnaround plan, Goneka said company will reduce cost significantly this year and the next year followed by a breakeven in 2022. They will also look at using its R&D prowess to in its domestic unit as also with the alliance with Ford India, he added. ?
A sustained effort at reducing raw material cost, integration of SsangYong into the M&M-Ford alliance and exploring new markets like Russia and Vietnam are part of the five-point plan, he explained.
On tapping new markets for SsangYong, Goenka said they hope to enter Vietnam by the end of 2020 and Russia will be a staggered entry by 2022.
"If SsangYong gets integrated into the M&M-Ford alliance, we'll be able to save on capex," Goenka said, adding through material cost reduction, we plan to save 80-90 billion wons".
On its alliance with Ford, which got the fair trade regulator's approval on Monday, Goenka said the company is working with Ford on a couple of SUV projects-C-SUV and B-SUV- for the domestic as well as global markets. He also indicated the possibility of involving SsangYong into these projects.
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SsangYong has borne the brunt of the slowdown. In 2019, the carmaker sold a total of 1,35,235 units, a drop of 5.6 percent from 143,308 units in 2018. It sold 1,07,789 units in the domestic market in 2019 as against 1,09,140 sold in 2018, according to company data and Goenka said he sees no significant change in volumes this year.
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