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M&M zeroes down on Maharashtra for the Scorpio - Views on News from Equitymaster
 
 
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  • Feb 2, 2000

    M&M zeroes down on Maharashtra for the Scorpio

    Mahindra & Mahindra (M&M) has settled for Maharashtra as the site for its Rs 4.5 bn manufacturing facility for its new generation UVs code-named 'Scorpio'. M&M is the leader in the utility vehicle segment (61% market share in October 1999) and the tractor segment (29% market share). It is also engaged in the manufacture of light commercial vehicles (LCV). In addition to the automobile segment, the M&M group also has interests in information technology (IT) and realty.

    The new plant will be located at Nashik, near M&M's current plant. The new capacity will enjoy a zero sales tax for 14 years. It will also enjoy octroi exemption for 5 years. According to a press release in a leading financial daily, M&M has selected Dana, Visteon, Lear Corp., Buher, Samlip and Sangyong as the vendors for the new project. These vendors would also be investing in the new project. The funding for the project is mostly equity-related with little debt funding. M&M's current debt-equity ratio is around 0.55 and will decline to 0.50 by March 2000. The initial capacity of the plant will be around 20,000 units.

    UVs on the new Scorpio platform will debut in April 2001. The high-end UVs will be in the same category as Mitsubishi Pajero and Land Rover but will be very competitive as far as pricing is concerned. The lower end UVs will debut later.

    The new platform of UVs is expected to cement M&M's leadership in that segment. The company already has a market share of over 60% and with the launch of the Scorpio vehicles will look to enhance it further. With the income tax and octroi exemptions, there will be lower pressure on profitability. This enable the company to break-even faster.

    Marrket view:
    Analysts have flagged a Buy on M&M due to improvement in 3QFY2000 operating margins, success of new models and the potential of the company's software venture - Mahindra British Telecom, in which M&M holds 60% stake.

     

     

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