Farm equipment and utility vehicle major Mahindra & Mahindra on Monday entered into a joint venture with China's third largest tractor maker Jiangsu Yueda Yancheng Tractor Manufacturing Co and will invest $26 million in the entity.
The Indian auto major will have 51 per cent in the JV, Mahindra Yueda Yancheng Tractor, with the rest held by the Chinese partner.
"Mahindra will invest $26 million in the JV," M&M Vice-Chairman and Managing Director Anand Mahindra told reporters here. The investment in the JV company would be by Mahindra Overseas Investment Company (Mauritius), he added.
M&M, which already has a presence in the Chinese tractor market through Mahindra China Tractor Co after acquiring 80 per cent stake in Jiangling Tractors in 2004, will now become the third largest tractor maker in the world after John Deere and New Holland.
With close to about 175,000 units of tractors sold across the world, M&M is gunning for the top spot.
"We want to be the number one in whichever market we are and the joint venture will help in extending our tractor product portfolio from 16 horse power to 125 horse power," Mahindra added.
As per the JV agreement with Yueda group, the assets and liabilities of the Chinese firm will be transferred to the JV. The value of net assets would be $50-million.
Mahindra China Tractor Company, which has a production capacity of 4,000 units. In 2007, Jiangsu Yueda produced 26,000 units while Mahindra and Punjab tractors together made 1.44 lakh tractors (including Mahindra China).
"This year, the production of Jiangsu Yueda will go up to 35,000," Mahindra said, adding the production capacity of the Chinese would be scaled up to 50,000 units.
Anand Mahindra said this joint venture would fasten its aim of becoming the number one tractor maker in the world.
"For a long time, the Mahindra group has aspired to become the number one tractor manufacturer in the world. With our alliance, we will achieve the goal in a much more rapid way," Mahindra said.
Mahindra is behind US-based John Derre, which produced 1.6 lakh units in 2007.
"We don't want to jump the gun on us becoming the number one now. We are waiting for this year to get over and then see the results," Mahindra said.
With two production units in China, Mahindra would start looking at consolidating its operations there and enhance the research and development in the joint venture.
"Consolidation will happen over a period of time and not from day one. However, there will be synergy between the operations," Mahindra Executive Director Bharat Doshi said.
Mahindra would significantly enhance the R&D in Jiangsu Yueda, he added.
Jiangsu Yueda exports 8,000 units to the US and a portion to Europe, too. The Chinese company's 2007 sales stood at $120 million, with a positive EBITDA, Doshi said.
Its product portfolio ranges from 16 HP to 125 HP.
This JV would help Mahindra to shift to more horsepower tractors in China.
Shifting to more horsepower is growing rapidly in China than in India, Mahindra said.
