Mahindra & Mahindra and International Truck & Engine Corporation (ITEC) have signed a joint venture agreement to produce commercial vehicles and source components.
After the Renault-Mahindra & Mahindra tie-up to make the Logan mid-size car in India starting 2007 and accordingly develop a right-hand drive model with the intention of penetrating other right-hand drive markets, Mahindra & Mahindra is back in news. This time around it is yet another joint venture and with International Truck & Engine Corporation (ITEC) to make commercial vehicles and source components. The signing of the joint venture agreement between M&M and ITEC comes close on the heels of the finalisation of plans between Force Motors (formerly Bajaj Tempo) and MAN Group of Germany to build heavy commercial vehicles in India. While Force Motors has been into the commercial vehicle business for decades and started producing three-wheeled (Hanseat) vehicles just after independence. The company, a few years back, launched the Excel range of light commercial vehicles. Mahindra & Mahindra, in comparison, has been into the commercial vehicles business for almost as long and started with the sale of vehicles based on the Jeep in collaboration with Willys Overland Corporation. In the 80s, M&M bought over the operations of Zaheerabad based ailing commercial vehicle maker, Allwyn Nissan. The range of light commercial vehicles that are made at Zaheerabad, will now become a part of the new company, Mahindra International. The 51:49 joint venture between M&M and ITEC with an investment of US $ 80 million aims at manufacturing heavy commercial vehicles - trucks and buses. To enable the company to start production from its inception pending the launch of the new range of medium and heavy commercial vehicles in 2007, M&M recently transferred its LCV business, which according to Bharat Doshi, executive director of M&M, is valued at Rs 48 crores, to Mahindra International. Mahindra International has therefore commenced manufacturing light commercial vehicles under a contract manufacturing arrangement with M&M at the Zaheerabad plant. A similar contract manufacturing arrangement is proposed for the medium and heavy vehicle production. Commenting on the JV, Anand Mahindra, vice chairman and managing director, M&M, said, "This JV will help us strengthen our competencies across our core areas of product development, engineering and manufacturing. While enabling the widening of our participation in the auto sector in India, our relationship with International Truck will also support our aspirations to be a global player". ITEC is not new to M&M as speaking on the occasion of signing the JV, Daniel Ustian, chairman, President and CEO of ITEC, said, "International started 150 years ago by manufacturing agricultural products. We had a successful JV with M&M 40 years." While Mahindra International aims at tapping the market above the 6 to 10-tonne commercial vehicle market, the current range of commercial vehicles excluding the 0.5-tonne and 0.75-tonne three wheelers (three-wheeler facility is being shifted to Haridwar in Uttaranchal) built at Zaheerabad is expected to complement the product range and expand the JVs participation across all the commercial vehicle segments. Commented Doshi, "We could be looking at 44 to 49-tonne market as well." Dr Pawan Goenka, president of M&M's Automotive Sector nailed the point home as he said, "Our focus remains on the CV business to get a lot more market share." Going a step further, Goenka also pointed at making buses as well, in a time frame of 2 years.
Deepak Kapur, president (Truck Group), ITEC, said, "Our association in its current form will cause International Truck to use India as a significant supply base for sourcing components and materials. In addition, the JV, along with Mahindra group companies will provide engineering services to International and the venture for the design and development of truck and bus products". A separate engineering centre will be set up and is expected to take care of engineering the medium and heavy vehicle product range to meet Indian requirements in addition to providing cost based support to ITEC.According to sources, Mahindra Engineering Services, the services arm of M&M, has begun supply of engineering services to International's truck development and technology centre and is in the process of setting up a 300 person dedicated engineering centre for this purpose.While one of the key focus areas of the JV is on expanding the market share in the Indian market, M&M as well as ITEC are looking at tapping new markets by outsourcing materials and built-up products from Mahindra International. According to Ustian, "Our strength is 10-tonnes and above. We believe to have the right cost structure and give the customers the right products."Daniel added, "We believe we have a tremendous opportunity for growth and cost structuring. We have started developing our engines and other activities. We have 200 engineers and 600 engineers in US to support." By growth, Daniel could be hinting at ITEC selling built-up units of light commercial (below 10-tonnes) vehicles made by Mahindra International in markets like South Africa, South America, etc where there is a market for such products. By cost structuring, Daniel could be hinting at outsourcing of materials and sharing of development costs. Sources close to M&M claim that the joint venture's product range and technology will focus on serving various export markets in Asia, Middle East, Africa, Russia and Central Europe as well as provide International with appropriate low-cost products and aggregate technologies for the Americas.Talking about engines, Daniel said, "We make nearly 600,000 diesel engines and our strength is in the diesel engine sector". Asked about the decision to enter India rather than China, Ustian said, "We chose to concentrate on India because our culture matches well. We see a partner we are comfortable with. Get to the market quicker and can concentrate on this JV". "We may have the opportunity to enter China as a JV with M&M", added Daniel. The strategy to meet the cost structure by sourcing materials and built-up units looks very interesting as part of the M&M-ITEC JV and this is clear from what Kapur said on the occasion: "US has high costs, coming from here could be more feasible". In addition to rendering engineering services, the JV will also provide sourcing services to ITEC's North American operations, in line with Daniel's drive to attain cost structuring. At the centre of the strategy is the effort to leverage India's competitive automotive parts supply base using M&M's Strategic Sourcing Business Unit and JV's sourcing team. Mahindra Systems and Automotive Technologies (MSAT), which is on an acquisition drive (see box) is also said to be in the loop.Back to the Indian market and Mahindra International will use its distribution network in India and has already appointed 140 dealers for the purpose. As the new range of heavy and medium commercial vehicles roll out of the Mahindra-ITEC JV in 2007, the Indian commercial vehicle market is sure to have undergone a good deal of change as Ashok Leyland, claim industry sources, is in talks with Iveco, the Italian commercial vehicle maker to manufacture a range of new, thoroughly modern commercial vehicles. Tata Motors too recently announced the manufacture of the Daewoo Novus range of commercial vehicles at its Jamshedpur facility. Tata, claim industry sources, is already well into the development of a world truck platform, which combines Daewoo's engineering expertise with Tata's ability to understand the needs of growing markets. While Volvo is already using its Indian facility to export trucks to other Asian markets, namely Korea, the other Swedish truckmaker, Scania is said to be planning to enter the top end of the Indian commercial vehicle market in 2006.
MSAT on acquisition driveMahindra Systems and Automotive Technologies (MSAT), the auto ancillary division of automobile maker Mahindra & Mahindra is set for up to three acquisitions. One of them is said to be an Indian company. Speaking on the occasion of the inking of JV between Mahindra & Mahindra and International Truck & Engine Corporation (ITEC), Hemant Luthra, president of MSAT said, "The company is in advanced negotiations with three mid-sized firms in the engineering services and auto component sector in Europe. We are looking at acquiring a German foundry", said Luthra, "and all the possible acquisitions are profitable". Asked about participation in the foundry business, Luthra said, "We could bring foundry and rough machining operations here and expand the super (end) finishing operations there to take advantage of their expertise and retain the fact that the end product continues to roll out of the existing facility". While looking at management, technology and outcome of synergy from the acquisitions, Luthra added, "I will be very disappointed if we should not be able to do three acquisitions this fiscal". According to industry sources, the European acquisitions MSAT is negotiating are in the region of US$ 50 million to US$ 70 million each. While the names of the companies are not clear yet, according to Luthra, "Each of these companies will have sales of US$ 30-50 million. M&M wants to make MSAT a billion-dollar company by 2010. MSAT is US$ 250 million company now". Attracting attention towards commitment to the board to grow to a billion-dollar company, Luthra said, "We are looking at both organic and inorganic growth," Luthra also touched upon Mforge, its auto component subsidiary. He said that the company was hiking Mforge's capacity, which at present is 36,000 tonnes. Luthra also attracted attention towards the JV between M&M and International Truck & Engine Corporation, which will in addition to making trucks in India, will also involve sourcing of components. MSAT thus apart from supplying auto components to M&M, plans to supply auto ancillaries to M&M's JV partners like ITEC and Renault. "We expect to export from India auto components worth US$ 100 million", said Luthra, "and some by MSAT, some from third parties".