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M&M prepares plan to turn around SsangYong, eyes breakeven by 2022

Updated : February 12, 2020 02:41 PM IST

The blueprint will require funding of Rs 3,000 crore, which will be raised in equal halves via equity and bank loans.

The plan will explore how Ssangyong can engage with Ford to reduce capex without compromising product development.

Mahindra & Mahindra has prepared a plan to turn around the fortunes of its South Korean subsidiary SsangYong and bring it to profitability by the calendar year 2022.

The blueprint will require funding of 450-500 billion Korean won (Rs 2,700-3,000 crore), which will be raised in equal halves via equity and bank loans. The initiative, once approved by the Ssangyong board, will look to cut losses in a phased manner, ultimately breaking even by 2022.

After M&M reported a 73 percent drop in net loss on the one-time impairment of Rs 600 crore that the company took on its investment in SSangyong, Pawan Goenka, CEO & MD, said the company has chalked out a plan to steer Ssangyong towards break-even by 2022.

The plan will focus on an aggressive strategy to reduce material costs over the next two years, which alone will lead to savings of 80-90 billion Korean won and a 3 percent improvement in operating costs. The focus will also be on reducing capex and bringing synergies with M&M.

Goenka said the plan will also explore how Ssangyong can engage with Ford to reduce capex without compromising product development plans. To boost export volumes, the company will develop new overseas markets, with a focus on Russia and Vietnam. Ssangyong has already reached an agreement with the Ssangyong Motor Labour Union to “significantly” bring down personnel costs, he said.

Goenka remained cautious while estimating a recovery in volumes for Ssangyong, citing the slowdown in the auto industry globally. “It is unreasonable to expect a significant recovery in volume in 2020 because of the overall slowdown in the global auto industry. But we expect to see a volume recovery from 2021 onwards with the new products we are launching for Ssangyong,” he noted.

While 2019 was expected as the first break-even year for Ssangyong, things started reversing rapidly from the second quarter of CY2019, Goenka told reporters, adding that the slide was caused due to the Korean market shifting very rapidly from diesel to petrol, and Ssangyong’s plants have been designed more for a diesel output. Certain markets including Iran, Chile and Western Europe negatively impacted export volumes, he added.