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M&M walks away from SsangYong with Rs 1,200 crore impairment, says capital allocation actions almost complete

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"It is understood that SsangYong now plans to submit a pre-packaged rehabilitation plan which may involve capital restructuring for existing creditors and shareholders," M&M said.

M&M walks away from SsangYong with Rs 1,200 crore impairment, says capital allocation actions almost complete
After a protracted attempt to sell its majority stake in South Korean subsidiary SsangYong, Mahindra & Mahindra (M&M) has swallowed the bitter pill and decided to walk away with an over Rs 1,200 crore hit.
Ahead of the February 28 deadline granted to SsangYong Motor Company (SYMC) by the Bankruptcy Court in South Korea to work out a deal with a potential investor under its Autonomous Rehabilitation Support (ARS) program, M&M in its third quarter results filing said it was "unlikely that this deal will be concluded under ARS", and it was thus taking a one-time impairment worth Rs 1,210 crore this quarter, following which it will stop consolidating SYMC's results as an M&M subsidiary.
"It is understood that SsangYong now plans to submit a pre-packaged rehabilitation plan which may involve capital restructuring for existing creditors and shareholders," M&M said.
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"Upon approval of the p-plan submitted by SYMC, the court will commence the rehabilitation proceedings and appoint a receiver to manage the affairs of the company," the automaker said.
Group chief financial officer Anish Shah said the filing is likely to be completed by the end of the month and M&M will continue to work with the buyer to help close the deal.
"This is the long-awaited end of the road as far as the loss-making subsidiary is concerned for M&M. M&M's financials will no longer reflect any losses emanating from this particular subsidiary. With this, the company's capital allocation actions to turn around its international subsidiaries are "almost complete," Shah said.
M&M, including Mahindra Vehicle Manufacturers, on Friday reported a net profit of Rs 530 crore in the December quarter of fiscal year 2021, a year-on-year growth of 39.6 percent, with a one-time exceptional loss of Rs 1,214 crore. The company's net profit, barring the one-time loss came in at Rs 1,745 crore, beating a CNBC-TV18 Poll of Rs 1,538 crore.
The automaker reported a revenue growth of 11 percent on a year-on-year (YoY) basis to Rs 21,625.95 crore from Rs 19,430 crore, reported in the corresponding quarter last year.
M&M has been on a path of strict capital allocation prioritisation to pare down losses from its non-performing global subsidiaries and narrow focus to its core business.
To that effect, the company classifies its international subsidiaries in three categories, depending on whether they have a clear path to 18  percent RoE, have a quantifiable strategic impact or an unclear path to profitability, with the third category consisting of businesses M&M plans to exit or wind down.
With SsangYong dealt with, the company is now sharpening focus on its North-American tractor subsidiary, takings steps to reduce fixed costs via rightsizing and undertake margin acceleration actions.
M&M's North America Operations
On the other hand, it expects further restructuring to take place at MANA - Mahindra Automotive North America, even as it prepares to relaunch the Roxor 2021 after having obtained permission to sell the off-roader in a favourable ruling in the US courts.
M&M was fighting a lawsuit filed against it by Fiat Chrysler Automotive over infringement of intellectual property which disallowed it from selling the Roxor in the American market.
As a result, M&M has cut a significant number of jobs at MANA, mainly around the product development centre in Detroit, after it decided to not bid for a United States Postal Services contract, and considering there was no production taking place at the Detroit manufacturing facility, M&M said.
Adding that the company is following the rationalisation approach across all its subsidiaries, Shah said M&M has also let to go of the "excess" manpower it had compared to market demand at the engineering services unit of Pininfarina.