The Hindu Business Line : Tractorul setback not major: M&M

Mahindra & Mahindra Ltd (M&M's) bid to acquire Romania-based Tractorul Brasov may have hit a roadblock but it needn't be seen as a major setback to growing the company's tractor business, a senior official said on Monday.

It may be recalled that after M&M emerged top bidder for the state-owned tractor manufacturer, the Romanian Government had referred the sale to the Competition Council of the European Union. This was against the backdrop of Tractorul's accumulated debt of over 180 million, writing off which would have lessened the buyer's compulsion to restructure operational parameters.

However, within the European Union, there is a general perception of debt write-off as indirect subsidy and hence reference to the Competition Council was needed. While it was learnt as early as April that sale had been considerably delayed for these reasons, the position today is of authorities having decided to suspend the sale pending clarity on debt write-off.

At M&M's end, it is not known whether a suspended sale means restoration to the post-bid position after a view on debt is taken or whether the process would need to start all over again.

Tractorul has, at present, a modest capacity of 18,000 tractors per annum. But historically it used to be one of the biggest manufacturers in East Europe making up to 60,000 units. Its brand is `Universal Tractors' and given a sizable export to countries within the erstwhile Soviet Union's influence, it has a residual footprint of almost 600,000-700,000 Universal Tractors working globally. It made the brand attractive to own. Mr Anjanikumar Choudhari, President (Farm Equipment Sector), M&M, does not see this jinxed bid or the earlier failed bid to acquire Valtra of Finland, as a setback to growing M&M's tractor sales. As he pointed out late last month as M&M's wait for its latest European acquisition was beginning to look indefinite, a few years ago when M&M's European interest gained momentum the market there had appeared large at 120,000-150,000 units per annum.

But between then and later years, a major change had been the growth in the tractor market in China, where M&M subsequently struck a joint venture with Jiangling Motor Co Group for local manufacture. Currently, the markets of China, India and USA account for 55 per cent of the global tractor sales and M&M has a presence in all three regions. Not just that, but tractors of up to 70-80 HP, which dominate sales in India and China and enjoy a niche market in US, form 75-80 per cent of the global market. This is also M&M's bread and butter segment, where most of its products are focused.

As for the remaining two big geographies, M&M has not initiated any major moves to tap South America (Valtra had a following there) while Africa can be accessed from India. "So, why should we see the recent developments in Europe as a major setback?'' Mr Choudhari asked.

On the other hand, M&M has been actively looking at a third plant on the American west coast for its US operations (it already has a market share of 15-16 per cent in the upto 70 HP class of tractors in Texas, Louisiana, Mississippi and Alabama), besides further acquisitions in China.