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BL Research Bureau

Mahindra and Mahindra’s joint venture with the Yancheng Tractor Company in China will help the company cater to the fast-growing Chinese tractor market besides providing a fillip for its exports to countries such as the US and Europe.

Helped by the Chinese government’s policy of offering subsidy for purchase of new tractors, lowering and subsequent removal of income-tax on agriculture and an MSP (minimum support price) cushion for farmers since 2004, the tractor industry in China grew at a compounded annual growth rate of 40 per cent in the last five years. M&M already has a footprint in China through its joint venture with the Jiangling Tractor Company, which is called Mahindra China Tractors. The latest joint venture will help the company consolidate its base in China.

This joint venture will also help the company establish a presence across all segments of the market. Jiangling which produces only 18-25 HP tractors, while Yancheng has a presence across all capacities — from 16 HP-125 HP.

Though M&M is already exporting to America and Europe through Jiangling, this joint venture will give it a second low-cost base in China for exports. This partnership may help the company add to its Chinese market share while finding new markets using the latter’s well-established distribution network of Yangcheng. The company currently exports to more than 60 countries including the US, Russia, Africa, South America and Europe.

For tractors manufactured in India too, this acquisition may help bring in cost savings as M&M may have a broader vendor base in China to source components from.

This comes in handy especially at a time when the company has announced plans to produce ultra-low cost tractors in the country ( in the Rs 2-lakh range) to delve deeper into the rural markets.

More Stories on : Stocks | Overseas Investments | Mahindra & Mahindra Ltd | HCV/LCV/Tractors

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