The Hindu Business Line : M&M scouting for acquisition in China

MAHINDRA & Mahindra Ltd (M&M) is looking to acquire a tractor manufacturer in China. At a press briefing on M&M's results hereon Thursday, senior officials divulged no names but said the company was targeting a 12-15 per cent share in the Chinese market for 30hp-80hp tractors in ten-years' time.

The Chinese market for such tractors is currently estimated at 70,000 units per annum and is forecast to grow at 6-8 per cent. China also has more than a million small tractors in the 18-15 hp category and 0.8 million power-tillers.

The industry has 20-25 big players from which M&M will pick its candidate, Mr K.J. Devasia, Executive Director of the company, said. M&M had shipped 90 tractors to China, of which 30 have been sold.

According to him, the company is planning a third plant in the US, given its intent to raise sales volumes there from the current 9,000 units to 17,000-18,000 units in the next three years.

Mahindra USA's existing tractor facilities are in Texas and Georgia. The company, fourth biggest in its segment in the US, recently began selling in Canada.

The Mahindra USA model will be migrated to the 8,000 units-strong Australian market, where M&M sees good potential in the 35hp-75hp range and 25 dealers are planned over the next two years.

The Chinese acquisition may not be the only one in M&M's attempt to be the world's biggest tractor manufacturer by 2008-2010.

The company - fourth biggest globally in tractors at present — had earlier unsuccessfully bid for Finnish manufacturer Valtra (it lost to AGCO) and a Chinese entry would still leave the higher horsepower segment un-addressed.

Though M&M has in-house work going on in that area, it will examine a prospective acquisition if that curtails lead-time, Mr Devasia said.

M&M's Chinese foray includes component sourcing (for use at Indian plants) and development of China as a low-cost export base. Mr Bharat Doshi, Executive Director, M&M, said unlike in the case of automobiles where foreign equity is limited to 50 per cent, China allows an over 50 per cent-level at tractor manufacturers.

The hunt for a partner is still on in China, but in South Africa where M&M has majority stake in a 51:49 joint venture, sale of 5,000 units is targeted in the first year or two followed by local assembly.

Mr Alan Durante, Executive Director, M&M, said the company's Russian plans - among its first foreign forays announced - had experienced some delay. It has now decided the partner to assemble M&M vehicles locally. Name was not disclosed.

Over the next three years, M&M will invest Rs 1,000 crore in its business (Rs 300 crore in FY05), Mr Doshi said, declining otherwise to put a cost estimate to growth plans outlined by Mr Devasia and Mr Durante.

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