The Hindu Business Line : M&M inks pact with Renault for greenfield car plant

Mahindra & Mahindra (M&M) and French automaker Renault have teamed up yet again to set up a greenfield passenger car manufacturing plant in India within five years.

The plant will be set up under a new joint venture in which both Renault and M&M will have equal equity participation.

It will be fully up and running at peak capacity of five lakh units a year by 2012, but will have initial production capacity of three lakh cars a year; the plant will go on stream by 2009.

The plant will manufacture derivatives of the Logan, an entry-level sedan that M&M will start manufacturing on behalf of Renault by mid-2007 at its Nashik plant.

Announcing the plans, Mr Carlos Ghosn, CEO of Renault and Nissan, said that the venture - for which an MoU was signed today - will be in addition to the existing marketing and contract manufacturing joint venture, Mahindra Renault Pvt Ltd, which will be responsible for rolling out the Logan next year.

A third Indian manufacturing initiative announced by Mr Ghosn today related to the setting up of a powertrain plant by Renault Nissan through a wholly owned subsidiary in India.

This plant will supply the engine and gearbox requirements for the Logan and possible derivatives and enable M&M to source future powertrain requirements for its utility vehicles and other products.

Mr Anand Mahindra, Vice-Chairman and Managing Director of M&M, said that the new venture would enable both partners to leverage synergies from joint sourcing and logistics.

The vehicles manufactured at the plant will be sold through the sales network already in place and to be expanded by M&M for marketing both its own utility vehicles and the Logan.

Mr Mahindra said that M&M will be able to finance the necessary additional equity through internal accruals; unlike the erstwhile Mahindra Ford joint venture, there will not be any cross-holdings in this venture.

Speaking on Renault's expectations from the Indian operations, Mr Ghosn said that the company hopes to derive cost benefits for both setting up of the plant and manufacturing of the vehicles from the inherent cost advantages that Indian engineering offers.

He added that Renault's manufacturing plans in India will be for the domestic market.

Exports out of India are not being contemplated currently.

M&M's existing 51:49 venture agreement with Renault, over a year old, envisages the manufacture of the Renault Logan, for which an investment of 125 million euros has been made.

An initial production volume of 50,000 units a year is being targeted.

Renault proposes to develop six derivatives, all based on the same platform.

Currently, the only derivative that has been announced and showcased at this year's Paris Motor Show is the Steppe - a seven-seater MPV.

The Mahindra-Renault joint branding plan for the Logan is also expected to continue for the derivatives being planned at the new plant.

The M&M scrip gained Rs 48 on Thursday, touching an intra-day high of Rs 833, before closing at Rs 828.