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U.S. major stops independent operations; JV to develop, market, distribute Ford vehicles in India

M&M’s Anand Mahindra and Pawan Goenka with Jim Farley, President of Ford New Businesses. Paul Noronha

After the exit of General Motors and Fiat from India, Ford Motor Company has now decided to close its independent operations in the country as it agreed to move most of its assets in India into a joint venture (JV) with Mahindra and Mahindra (M&M), which will own 51% controlling stake and operationally manage the JV.

Both companies have signed a definitive agreement to create a JV that will develop, market and distribute Ford brand vehicles in India, and Ford brand and Mahindra brand vehicles in high-growth emerging markets around the world.

“Ford will transfer its India operations to the joint venture, including its personnel and assembly plants in Chennai and Sanand. Ford will retain the Ford engine plant operations in Sanand as well as the global business services unit, Ford Credit and Ford Smart Mobility,” both companies said in a joint statement. Ford has struggled to compete with cheap, fuel-efficient vehicles in the world’s fourth-largest automobiles market even as it was one of the first global car companies to enter India when the economy opened up in the early 1990s. “Mahindra and Ford coming together is a testament to the long history of cooperation and mutual respect between the two companies,” said Anand Mahindra, chairman, Mahindra Group.

“Our combined strengths — Mahindra’s expertise in value-focussed engineering and its successful operating model, and Ford’s technical expertise, global reach and access to future technology — are a potent recipe for success,” he added.

Valued at ₹1,925 crore

The joint venture, valued at ₹1,925 crore, is the next step in the strategic alliance forged between Ford and Mahindra in September 2017 and is expected to be operational by mid-2020 and its governance would be equally overseen by representatives of Mahindra and Ford.

“Ford and Mahindra have a long history of working together, and we are proud to partner with them to grow the Ford brand in India,” said Bill Ford, executive chairman, Ford Motor Company.

The joint venture will be responsible for growing the Ford brand in India and exporting its products to Ford entities globally.

The American major will continue to own the Ford brand, and its branded vehicles will be distributed through the current Ford India dealer network.

Mahindra will continue to own the Mahindra brand and operate its own independent dealer network in India.

Firms pin hopes on festive purchases

Automobile sales in the country continued to decline in September but the industry is hopeful of buyers returning to the market on the back of festive celebrations along with factors, such discounts and good monsoons spurring purchases.

Automakers have already begun seeing an increase in showroom footfalls and retail bookings. This is also reflected in the vehicle registration data available on the Ministry of Road Transport and Highways website. The data show that across 31 of the 36 States, vehicle registrations stood at over 19.33 lakh units in September, the highest monthly registrations since November 2018 when the number stood at over 21.01 lakh registrations.

While retail sales — represented by vehicle registrations — show signs of a pick-up, wholesales continue to fall. Interestingly, even at the wholesale level, sequential monthly sales show a rise, as in the case of Maruti.

Maruti Suzuki India on Tuesday saw its domestic passenger vehicle sales decline 27% last month to over 1.1 lakh units, down from about 1.51 lakh units in the year-ago period. On a sequential basis, September sales are higher than the 93,173 units seen in August.

Hyundai Motor India said its domestic sales fell 14.8% to 40,705 units last month, while Honda Cars India saw domestic sales of 9,301 units in September 2019 as against sales of 14,820 units in September 2018.

“We are positive that this festive season, will augur well for us and the automotive industry,” said Veejay Ram Nakra, chief of sales and marketing, automotive division, M&M Ltd. “This, in addition to factors such as the good monsoon and recently announced positive government initiatives should help revive the industry in the short term,” he added.

Mayank Pareek, president, passenger vehicles business unit, Tata Motors Ltd. said, “Customers have responded well to our festive offers as reflected in 11% more retail in September 2019 compared with August. However, the industry continued to decline in September.”

“In September, our retail was 31% more than offtake; as a result, dealer stock came down by around 10%. In H1, network stock has been reduced by 21%, the lowest in the last 10 quarters. This helped in rotation of dealer working capital and preparing the network for the festival season.”

Bajaj Auto’s total sales fell 20% to 4,02,035 units in September. The company had sold 5,02,009 units in the same month a year ago.

Commercial truck maker Ashok Leyland reported a 57% dip in domestic sales to 7,851 units during September 2019 from a year earlier.

Uday Kotak gets one-year extension as chairman of the debt-ridden firm

IL&FS chairman Uday Kotak (left), and C.S. Rajan, MD, IL&FS, addressing the media on Tuesday. SHASHI NASHIWAL

The board of the crisis-hit Infrastructure Leasing & Financial Services (IL&FS), which was reconstituted by the government last year, expects to resolve at least half of the company’s debt issues by the end of the current financial year.

The company has initiated a combination of actions, including monetisation of assets and restructuring of debt, and hopes to either resolve or restructure 50% of its over ₹90,000 crore debt by March 2020, said Uday Kotak, who was appointed chairman by the government in October last year.

“Our good faith view at this point of time is that we should be able to recover, restructure or resolve... but we are quite confident that we should cross the 50% mark based on our best estimates and judgment,” Mr. Kotak told the media.

On Tuesday, the government gave Mr. Kotak a one-year extension to continue as the chairman of IL&FS.

The veteran banker also said that the company would consider the Infrastructure Investment Trust (InvIT) route to monetise some of its road assets. The diversified group is expecting ₹3,000-3,500 crore from sale of real estate assets, including its headquarters at the BKC business district in the city.

Further, the company has identified a resolution plan for all its 302 entities, whose combined debt is pegged at ₹94,216 crore. These include 169 domestic entities and 133 overseas companies.

3 entities restructured

Incidentally, three entities with a combined debt of around ₹5,100 crore have already been successfully restructured, while discussions for restructuring another ₹8,000 crore worth of debt is at an advanced stage, as per the company presentation made on Tuesday.

In all, debt worth ₹36,400 crore is currently at various stages of getting resolved, and an additional debt of around ₹17,000 crore was likely to be addressed by March 2020, said Mr. Kotak, while highlighting the fact that the the board of the company had navigated through ‘extreme complexity’ and developed a resolution plan for all the 302 entities.

(With PTI inputs)

Rises to ₹1.38 lakh cr. in first half of FY20, from ₹39,000 cr.

The first six months of the current financial year have seen credit quality pressures intensify for corporate India due to a combination of factors like global and domestic economic slowdown, sharp fall in consumption demand, and slower government spending.

The latest analysis by ratings major Crisil, the value of debt that has been downgraded saw an over three-fold jump to ₹1.38 lakh crore in the first half of fiscal 2020, from ₹39,000 crore in the first half of the previous financial year. Incidentally, this is the highest for any half — first six months of a fiscal — since the financial year 2015-16.

Further, the rating entity’s debt-weighted credit ratio, which is the value of debt upgraded to downgraded, plunged to 0.25 in the first half of the current fiscal, a major drop from the previous financial year’s ratio of 1.65.

According to the ratings agency, constrained access to funding also affected the credit profiles of entities across sectors, especially non-banks and real estate.

“Across rating categories, entities with higher leverage saw more downgrades as pressure from the demand slump intensified,” Somasekhar Vemuri, senior director, Crisil Ratings said. “Declining profitability and stretch in working capital cycles also were reasons for the downgrades. On the other hand, those with lower leverage withstood the demand-side challenges better,” Mr. Vemuri added. More importantly, the fall in credit ratios was seen across sectors linked to investment, export and domestic consumption.

Among investment-linked sectors, construction and allied accounted for over 30% of downgrades because of delays in project execution and stretched liquidity.

Mariwala calls for land, labour, judicial reforms to help industry compete globally

Not enough: To benefit from the trade war, the Centre needs go beyond lower taxes, says Mr. Mariwala. Prashant Nakwe

The corporate tax rate cuts announced by the government have created a feel-good factor and made Indian businesses more competitive, but much more needs to be done to revive consumption, says Harsh Mariwala, chairman, Marico.

Mr. Mariwala, who is now involved in guiding and mentoring entrepreneurs through his Ascent Foundation, said the country needed more structural reforms in areas such as land, labour and judiciary, so that it can compete in the international arena.

“Some of the steps that the government has taken like the latest round of tax deductions will have some effect... but much more needs to be done,” he said .

“We need more structural reforms to make Indian businessmen and Indian businesses far more competitive. Interest rates are still high. You need land reforms, labour reforms, judicial reforms if you want to compete in the international market (or) if you want to take advantage of the U.S.-China trade war,” added Mr. Mariwala.

The benefit of the ongoing trade war had not come to India but had gone to countries such as Vietnam, Bangladesh and Korea, and hence the government needs to do more than just reducing the taxes.

Incidentally, the FMCG sector, of which Marico is a part, is witnessing one of its worst slowdown in many years.

In a recent report, global financial major Credit Suisse said that for the FMCG sector, which has been facing extreme headwinds in the last few quarters, the current fiscal could be the worst in 15 years in terms of revenue growth, on account of agricultural slowdown, liquidity concerns, employment issues and slower-than-expected impact of government initiatives.

He said the immediate revival of the FMCG sector looks difficult as the money would not be directly flowing into the hands of the consumers post the tax cuts. “Money does not go into the hands of the consumers. The extra money flows into companies and they in turn invest again. But impact on consumption takes long,”Mr. Mariwala said.

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