Source: Business Standard, Jul 29, 2016
Mumbai: Automobile companies that had ventured to tap opportunities outside their core areas have either shut down operations or are neck deep in losses.
From two-wheelers to construction equipment to passenger vehicles and mini-trucks, ventures by companies like Ashok Leyland, Mahindra & Mahindra and Eicher have failed to take off.
A prolonged downturn in the construction equipment industry forced Chennai-based Ashok Leyland to exit its seven-year joint venture with US-based John Deere, after consistent loses.The Hinduja Group company also shut down a passenger vehicle division that used to make a multi-seater van, Stile, based on a Nissan platform.
Ashok Leyland’s expertise lies in medium and heavy trucks and buses, and it is the second biggest player in this segment after Tata Motors. The two ventures, an impairment change of 25 per cent in Albonair and equity in Optare cost Ashok Leyland Rs 510 crore.
Mumbai-based Mahindra Two-Wheelers saw its net loss before exceptional items jump 37 per cent last financial year to Rs 759 crore, from Rs 555 crore in the previous year. The subsidiary is yet to generate profits since its entry into the segment in 2008 through the buy-out of Kinetic Motors’ assets.
“The two-wheeler division has not seen the kind of success we had envisaged. We are currently working on a restructuring plan that will entail a more optimised business model. Going forward, we will focus on areas where we have the right to win and drive growth in segments where we have been able to differentiate, such as the recently launched Mojo and Gusto 125. Further announcements will be made in the next couple of months,” a spokesperson from Mahindra & Mahindra said.
Likewise, Mahindra Construction Equipment (MCEL), which makes backhoe loaders, lifts and carry cranes, is facing strong headwinds. According to the audited balance sheet dated March 31, 2014, the loss for that year stood at Rs 7 crore.
Having entered into this segment in 2011, M&M reduced its holding in MCEL to 37.5 per cent from 43.9 per cent reported four years ago. From a status of a subsidiary of M&M, MCEL became an associate company due to the stake offloading.
M&M is the market leader in utility vehicles and tractors, which are its core segments. The company absorbed the truck and bus operations into itself, a few years ago.
The makers of Royal Enfield motorcycles, Eicher Motors, launched a personal utility vehicle Multix, a mini-passenger and cargo carrier. The unorthodox-looking vehicle, built jointly with US-based Polaris, has met with little success since its launch a year ago.
The joint venture was able to sell an average of just 125 units a month and ended last financial year with total sales of 921 units. The company’s earnings before depreciation and tax stood at a loss of Rs 61 crore.
Radhesh Verma, chief executive officer, Eicher Polaris, said, “Eicher Polaris launched Multix in June 2015 with a view to address a need-gap in the market and to build a new consumer segment in the Indian automotive industry. By virtue of this, the target consumers and markets for Multix are unique and need to be developed. We started pilot retail operations in August 2015 with 30 markets. We received an encouraging response and many consumers are early adopters.”
The company did not state if the initial volumes of the Multix were on expected lines. It also refused to provide the distribution strength of the business and outlook on possibility of profit.