M&M to steer Ford's India operations, form 51:49 JV to cut risks and costs

Ford Motor’s India innings has come full circle. Two decades after the Michigan-based company ended its joint venture (JV) with Mahindra and Mahindra (M&M), the company has done a pivot — this time to hedge its risks in a market that is promising enough not to exit but where it has struggled to make deeper inroads despite a long presence.
Following two years of courtship, the two automakers said on Wednesday that they had agreed to tie the knot by stitching a 51:49 JV, with M&M in the driver’s seat. With this move, Ford will cease almost all the standalone operations in India.
“It’s a new era of collaboration for Ford and Mahindra,” Ford Chairman Bill Ford said in a video conference from Detroit. “Together we have the opportunity to make lives better in India, emerging markets, and the world. In today’s changing world, partnerships have the capability to make one more competitive. The alliance is a perfect win-win.”
Putting speculation about Ford’s exit from India to rest, he said, “Ford will continue to make vehicles in India, for India and the world. We remain deeply committed to India.”
Under the terms of the deal, which is likely to be finalised by mid-2020, Ford will transfer its local automotive assets, including both its car manufacturing plants in Chennai and Gujarat, and employees to the new entity. The JV plans to introduce three new vehicles under the Ford brand, beginning with a midsize SUV that will share underpinnings with the Indian partner. Ford will retain its engine plant at Sanand and its global business centre in Chennai. The new entity, which will be operationally managed by M&M, will develop and sell Ford brand vehicles in India and export Ford and Mahindra brand vehicles to emerging markets.
Anand Mahindra, chairman, Mahindra Group, said, “The new company being formed today is built on the best foundations -- friendship and synergy. It’s a pleasure to be working again with Ford.”
The new company, he said, would bring scale and skill. Citing an instance of scale, Mahindra said the combined sourcing scale of the new entity would be 1.3 times M&M’s current scale and three times that of Ford. “This will be a game changer. It will unlock opportunities for both,” said Mahindra, adding that Ford’s access to new technology and reach in emerging markets will be valuable for the company.
Ford will gain from M&M’s cost competitiveness and frugal engineering. The new entity, he said, would be Ebitda (earnings before interest, tax, depreciation and amortisation) positive from the first day.
Ford has been globally restructuring its businesses with an aim to save $11 billion over the next few years. It was one of the first global car companies to enter India when the economy opened up in the early 1990s. The company had first set up shop in India in 1926 but shut down in the 1950s.
graph“Together we feel we can create a strong powerhouse,” said Jim Farley, president of Ford’s new business and technology. The JV will allow Ford not only to sustain its business in India but bring value engineering on a larger scale and create a meaningful portfolio of products for India and emerging markets, he said.
“We have been working together for two years and have made very good progress. Based on the confidence we have in our chemistry, culture and the benefits, we have decided to tie the knot,” said Pawan Goenka, managing director at M&M.
Analysts said the deal was likely to benefit both the companies. Mahantesh Sabarad, head of research at SBICAP Securities, said, “The companies are hoping to have a lot of synergy, particularly on the costs side. For Ford that has been making losses at PAT (profit after tax) level, if not at Ebitda level, it’s a mechanism for the global entity to curtail its investment in India.”
The companies seem to have taken a leaf out of Tata Fiat JV even as they have tried to learn from the mistakes Tata Motors and Fiat made, he said.
In January 2006, Tata and Fiat first signed a pact for a joint distribution agreement as part of which they established a chain of joint dealerships. Six months later, the duo got into an equal joint venture for making cars, engines and transmissions. While the manufacturing JV paid off, the joint distribution had to be called off in 2012 owing to multiple issues. Mahindra and Ford will continue to have separate sales channels.
“The two have been in partnership before, so that helps,” pointed out Rakesh Batra, an industry expert. But getting the product strategy right would be the most crucial aspect of the JV, as design and developing common platforms for multiple geographies can be a big challenge, he said

We'll recover at least 50% of group's debt by March 2020, says IL&FS

The government-appointed management committee of the IL&FS Group says it expects at least half of the group’s debt to be resolved, recovered or restructured. And, to do a significant portion of that by March 2020.
“(That is) our good faith view at this point of time,” said Uday Kotak, the recently appointed non-executive chairman. “When we are saying 50-plus per cent is our estimate, we are saying that we are confident of actual resolution or recovery of at least 50 per cent of Rs 94,000 crore.”

The group is in the process of addressing Rs 36,400 crore of debt till date, of which recovery or resolution of at least Rs 30,000 crore is expected, it says. For now, the group is targeting low hanging fruit. Such as the sale of the wind energy subsidiary to ORIX Corp, for which the National Company Law Tribunal has given permission, with banks also expected to shortly do so. The amount of Rs 4,320 crore related to the Special Purpose Vehicle in question can be fully recovered through the deal, says the management.
On the other ‘green’ entities, or group firms that can service debt on their own, the management says it is trying to make these “positive equity” and then pass it on to entities that can better manage these. For now, Rs 7,930 crore of such dues are getting addressed.
For ‘Amber’ or ‘Red’ companies in roads and education, bids are being submitted to the committees of creditors (CoCs). The company has received bids of Rs 8,100 crore for these companies that hold debt of Rs 10,150 crore. For entities with low or no bids, the management will consider an infrastructure investment trust (InvIT) model. At present, the net cash available is Rs 3,200 crore. The InvIT model will be particularly considered for nine domestic road projects with total debt of Rs 10,800 crore. Of these, the group got lower bids for five projects and none for the remaining four.
The final decision on whether to accept the bids or the InvIT model will rest with the lenders. IL&FS is also considering an option whereby lenders convert their debt to units in the InvIT for these nine projects.
In September, IL&FS said it had got binding bids worth Rs 13,000 crore for 10 road projects with combined debt of Rs 17,700 crore. The group on Tuesday said it had decided to send five of these bids for CoC approval, for debt worth Rs 9,500 crore.
graphAlso on Tuesday, it said a bid had come from abroad for its road project in China, where debt exposure is Rs 1,600 crore. “The binding bid received is with equity value,” IL&FS said.
The group is also in discussions with lenders for restructuring debt worth Rs 8,000 crore for its Tamil Nadu power project.
Officials added the group’s engineering entity, IL&FS Engineering and Construction Company, will start participating in these project works. The management committee said these orders will be pursued either through joint ventures or back-ended contracts.
The group will also look to monetise its real estate assets, including its headquarters building in Mumbai. The management committee is hopeful of Rs 3,000 to Rs 3,500 crore from this sale. Kotak attributed the Mumbai building alone to be worth upward of Rs 1,500 crore.
In the past year, the group cut jobs by a third, through both voluntary exits and dismissals, to 16,000 employees from the earlier figure of 22,000.
The management committee says it has also adopted a 'cash conservation culture', with a balance of Rs 5,300 crore as of end- August. Recovery of loans from non-IL&FS group entities was about Rs 1,200 crore. The group also restructured debt worth Rs 5,100 crore, moving three entities from amber to green category.
Murky past
IL&FS was a complex pyramid, of 302 entities – 169 domestic and 133 international ones, present across 11 countries, with a four-layered structure.
Vineet Nayyar, the newly appointed executive chairman, and former head of Mahindra Satyam (Mahindra acquired Satyam after the latter's promoter was jailed for major fraud) said IL&FS’ former management had no value for money. Heads of various entities fought own turf wars.
“I have never seen so many automobiles in a company than I see here," he observed. "Over-expenditure was a trait. Even Satyam had far better controls; it was, in many ways, a very well-managed company as compared to (IL&FS).
Uday Kotak gets 1-year extension on IL&FS board
The government on Tuesday allowed Kotak Mahindra Bank Managing Director Uday Kotak to continue as the head of bankrupt infra lender IL&FS for one more year. Kotak was appointed by the Centre as the head of the lender’s board which will help the troubled company come out of difficulties, after the state took over the board. - PTI

No respite from slowdown pain: GST collection drops to 19-month low in Sept

Goods and services tax (GST) collection fell to a 19-month low of Rs 91,916 crore in September, pointing to a deepening economic slowdown.
The GST mop-up in September was 2.67 per cent lower than the collection in the corresponding month last year at Rs 94,442 crore and 6.4 per cent below the last month’s figure of Rs 98,202 crore, the finance ministry data showed on Tuesday.

It’s the second straight month when the collection has fallen below the Rs 1-trillion mark. This is expected to compound the government’s revenue woes, amid a steep target for 2019-20. The government’s monthly GST collection target is around Rs 1.18 trillion.
In the first six months till September, the GST collection grew by 4.9 per cent compared to the year-ago period.
The central GST collection in September was lower at Rs 16,630 crore compared to Rs 17,733 crore in August. The state GST collection was Rs 22,598 crore, compared to Rs 24,239 crore the previous month. The integrated GST mop-up was also lower at Rs 45,069 crore against Rs 50,612 crore in August.
“The lower collection reflects the economic reality on the ground and the government will need to find ways to spur demand. With virtually no room for an increase in GST rates, further strengthening of administrative measures may be needed to improve the level of compliances,” said Pratik Jain, partner, PwC India.
ChartSubdued revenue collections pose a challenge for Finance Minister Nirmala Sitharaman. The steep growth target of 16 per cent for the central GST in FY20 reinforces the need for emphasis on data intelligence and policies to plug leakages. The CGST collection target was, in fact, revised downwards to Rs 5.26 trillion for the fiscal year from Rs 6.1 trillion estimated in the interim Budget, following a 9 per cent shortfall in the actual collection for the previous year.
Lower-than-expected revenues are also putting pressure on the Centre to compensate states for the revenue shortfall. The compensation cess collection stood at Rs 7,620 crore during the month, which appears much smaller than the approximately Rs 13,000 crore compensation going out to states on a monthly basis. There was a shortfall of around Rs 24,000 crore between the GST compensation cess collected till August and the compensation disbursed to states to meet the revenue shortfall.
“The lower collections seem to be on account of the lower GDP growth numbers that we have seen, as GST is a transaction tax that is immediately impacted by any decline in any economic activity. However, the coming festival season is expected to improve collections,” said M S Mani, partner, Deloitte India.
India’s GDP growth fell to a six-year low of 5 per cent in the April-June period.
“The intention of the government is to bring back the economy to a high growth trajectory and this can be achieved not by rate cuts but by pragmatic rate rationalisation and improved compliances,” said Abhishek Rastogi, partner at Khaitan & Co.
The government is working on measures to plug tax evasion, including data analysis, new return formats, e-way bill, e-invoicing, and mandatory e-ticketing for movie theatres.
A total of 75.9 lakh GSTR-3B, or summary returns, were filed in September, a shade higher than 75.8 lakh in the previous month.

Govt shelves plan on countrywide ban on single-use plastic products

India has held off imposing a blanket ban on single-use plastics to combat pollution, officials said on Tuesday, a measure seen as too disruptive for industry at a time when it is coping with an economic slowdown and job losses.
The plan was for Prime Minister Narendra Modi to outlaw six items on Wednesday, the 150th anniversary of the birth of independence leader Mahatma Gandhi, as part of a broader campaign to rid India of single-use plastics by 2022. But two officials said there would be no immediate move to ban plastic bags, cups, plates, small bottles, straws and certain types of sachets and instead the government would try to curb their use.

For now, government will ask states to enforce existing rules against storing, manufacturing and using some single-use plastic products such as polythene bags and styrofoam, Chandra Kishore Mishra, the top bureaucrat at the ministry of environment, told Reuters.
“There is no new ban order being issued,” Mishra said. “Now, it’s a question of telling people about the ill-effects of plastic, of collecting and sending for recycling so people don’t litter.”
The government’s proposed countrywide ban had dismayed consumer firms, which use plastic in packaging for everything from sodas and biscuits to ketchup and shampoo.
The Confederation of Indian Industry, a lobby group, said the move had become an existential issue for several economic sectors because alternatives were not immediately available. It said small-sized plastic bottles used for pharmaceutical or health products should be exempted as there is no alternate available. Sachets made from so-called multi-layered packaging should also not be banned, as that could disrupt supplies of products like biscuits, salt and milk, the confederation said.
“There was a conscious decision within the government not to hit businesses hard for now and discourage use of plastic only on a voluntary basis,” said an official.
Plastic lives
PM Narendra Modi was to outlaw six items on 150th birth anniversary of Mahatma Gandhi
Environment secretary says “no new ban order”
Government will try to curb single-use plastic usage
Will ask states to enforce existing rules against manufacture, storage
Part of a broader campaign to rid India of single-use plastics by 2022
India currently uses about 14 million tonnes of plastic annually

Power gencos' outstanding dues on discoms rise 57% to Rs 78K cr in August

The outstanding dues owed by distribution utilities to power producers rose around 57 per cent to Rs 78,020 crore in August 2019 as compared to the same month last year, reflecting a growing stress in the sector.
Distribution companies owed a total of Rs 49,669 crore to power generation companies in August 2018, according to web portal and app namely PRAAPTI (Payment Ratification and Analysis in Power procurement for Bringing Transparency in Invoicing of generators).

The portal was launched in May 2018 to bring a transparency in power purchase transactions between generators and discoms (distribution companies).
In August this year, total overdue amount, which was not cleared even after 60 days of grace period offered by generators, stood at Rs 59,532 crore as against Rs 34,464 crore in the same month in 2018.
Power producers give 60 days' time to discoms for paying bills for the supply of electricity. After that, the outstanding becomes overdue and generators charge penal interest on that in most of the cases.
In order to give a relief to power generation companies, the Centre has enforced a payment security mechanism from August 1. Under this mechanism, discoms are required to open letters of credit for getting power supply.
The data on the portal indicates that the outstanding as well as overdue amount have increased over the preceding month. In July 2019, the total outstanding on discoms was Rs 76,467 crore, while the total overdue amount was Rs 56,556 crore.
The July 2019 figures of dues and overdues have been revised upwards from Rs 73,748 crore and Rs 54,342 crore provisional numbers released last month on the portal.
ALSO READ: Power gencos outstanding dues on discoms jump 57% to Rs 73,000 cr in July
Discoms in Rajasthan, Jammu and Kashmir, Telangana, Andhra Pradesh, Karnataka, Tamil Nadu account for the major portion of dues to power generating companies, taking a longer duration of up to 820 days to make payments, the portal showed.
Among major states, Andhra Pradesh tops the list with 852 days to make payments, followed by Rajasthan (851 days), Haryana (849 days), Madhya Pradesh (836 days) Telangana (829 days) and Tamil Nadu (823 days) in that order.
Delhi takes 878 days to make payments to power generating firms.
Overdues of independent power producers amount to over 24.6 per cent of the total overdue of Rs 59,532 crore on discoms.
Among the central public sector power generators, NTPC alone has an overdue amount of Rs 8,452.58 crore on discoms, followed by NLC India at Rs 4,691.49 crore, NHPC at Rs 2,324.05 crore, THDC India at Rs 1,936.11 crore and Damodar Valley Corporation at Rs 805.71 crore.
Among private generators, discoms owe the highest overdue of Rs 3,794.49 crore to Adani Power, followed by Bajaj Group-owned Lalitpur Power Generation Company Ltd at Rs 2,212.66 crore and GMR at Rs 1,829.68 crore.

Four reasons why Sensex tumbled over 700 pts in intra-day trade on Tuesday

Domestic stocks witnessed a sharp decline in the afternoon deals on Tuesday with the benchmark indices falling around 2 per cent amid across-the-board selling. The S&P BSE Sensex nosedived as much as 726.13 points or 1.87 per cent to 37,929.89 levels during the session while the Nifty50 index on the National Stock Exchange (NSE) shed over 200 points or 1.85 per cent to 11,260 levels.
The indices, however, trimmed their losses at the end of the session. The Sensex ended at 38,305.41, down 362 points or 0.94 per cent, while the NSE's Nifty50 index ended at 11,359.90, down 115 points or 1 per cent.
Counters such as PSU banks, realty, and media fell like ninepins while the volatility guage India VIX jumped 14 per cent to 18.04 levels during the day. The Nifty PSU Bank index slipped over 6 per cent to 2,154.30 levels with all the 12 constituents declining. At close, the index stood at 2,207.45 levels, down 87 points or nearly 4 per cent.
The broader market was no different as the S&P BSE MidCap index slipped over 1.50 per cent to end at 13,886.42 levels while the S&P BSE SmallCap index closed at 12,958.97 levels, down 211 points or 1.61 per cent.
"We expect that weak macro data points as well as disappointing auto sales numbers may also weigh on the investor sentiments in the near term. We expect that the RBI monetary policy may provide further direction to the markets. We envisage a 25 basis points (bps) rate cut in the policy, however, the central bank’s outlook on inflation and growth would be a key monitorable," said Ajit Mishra, Vice President, Research at Religare Broking.
Further, global developments such as US-China trade war as well as crude oil price movement amongst rising tension between Saudi Arabia and Iran would keep the market participants on edge, Mishra added.
Here's a look at the key factors that dragged market lower on Tuesday -
Financials tumble: Stocks such as YES Bank and Indiabulls Housing Finance were in a free fall. YES Bank tumbled a whopping 30 per cent during the day. The stock has witnessed fresh round of selling after its promoter entities sold stake. Last week, YES Capital, one of the promoter entities of YES Bank, sold 1.8 per cent stake in the bank. That apart, Indiabulls Housing Finance continued to reel under pressure on concern over merger with Lakshmi Vilas Bank (LVB). The Reserve Bank of India (RBI) on Saturday initiated prompt corrective action (PCA) against LVB.
Further, sentiment also took a hit after Moody’s warned that banks in India risk seeing their capital severely depleted if there is a rise in corporate defaults.
“Indian banks are the most vulnerable because they have lower capital ratios, and their capital will be wiped out under our stress scenario,” Moody’s said, analysing banks in 13 Asia Pacific economies. READ MORE
PMC Bank crisis: That apart, deepening crisis at Punjab and Maharashtra Cooperative (PMC) Bank also hit investor sentiment."The Indian equity indices witnessed sharp fall today following heavy selling in banking stocks due to rising fears of their exposure to troubled real estate/housing finance companies," said Ajit Mishra, Vice President, Research at Religare Broking.
Last week, the Reserve Bank of India (RBI) had restricted activities of PMC Bank for six months citing major financial irregularities, failure of internal control and under-reporting of its exposures under various off-site surveillance reports.
The Nifty Realty index plunged up to over 6 per cent to 242.95 levels. PMC Bank helped real estate developer Housing Development & Infrastructure (HDIL) pay off loans of other public sector banks (PSBs) under one-time settlement schemes, so that the promoters could retain control over the real estate company. READ MORE
Subdued auto sales numbers: Automakers continued to post disappointing sales figures for August. The country's largest carmaker Maruti Suzuki India (MSI) on Tuesday reported a 24.4 per cent decline in sales at 1,22,640 units in September. Homegrown auto major Mahindra and Mahindra (M&M) reported a 21 per cent decline in total sales at 43,343 units in September while Ashok Leyland reported a 57 per cent drop in domestic vehicle sales in September to 7,851 units from 18,078 units in the year-ago period.
Disappointing macro numbers: The country's manufacturing sector activity in September remained unchanged amid subdued demand conditions both domestically as well as externally, a monthly survey said on Tuesday.The IHS Markit India Manufacturing PMI was at 51.4 in September, unchanged from August and thereby posting its joint-lowest reading since May 2018. That apart, the eight core industries in August recorded a 0.5 per cent decline in output of coal, crude oil, natural gas, cement, and electricity.

Maruti to Tata, festive season fails to lift up passenger vehicle sales

Major automobile makers, including Maruti Suzuki, Hyundai, Mahindra & Mahindra, Tata Motors, Toyota and Honda, on Tuesday reported double digit declines in domestic passenger vehicle sales in September as onset of the festive season failed to lift the ongoing slump in the auto industry.
The country's largest carmaker Maruti Suzuki India said its domestic sales declined by 26.7 per cent at 1,12,500 units last month as against 1,53,550 units in September 2018.
Sales of mini cars comprising Alto and WagonR stood at 20,085 units as compared to 34,971 units in the same month last year, down 42.6 per cent.
Sales of compact segment, including models such as Swift, Celerio, Ignis, Baleno and Dzire, fell 22.7 per cent at 57,179 units as against 74,011 cars in September last year.
The firm's mid-sized sedan Ciaz sold 1,715 units as compared to 6,246 units earlier.
ALSO READ: Tata Motors reports 48% sales decline in September at 36,376 units
Similarly, sales of utility vehicles, including Vitara Brezza, S-Cross and Ertiga, declined marginally at 21,526 units as compared to 21,639 in the year-ago month, it added.
Hyundai Motor India said its domestic PV sales were down 14.8 per cent at 40,705 units as against 47,781 units in September last year.
Mahindra & Mahindra (M&M) reported 33 per cent decline in passenger vehicle sales at 14,333 units last month as compared to 21,411 units in the same month last year.
Reflecting on the sales performance, M&M Chief of Sales and Marketing, Automotive Division, Veejay Ram Nakra said, "We are positive that this festive season, with the onset of Navratra, will augur well for us and the automotive industry."
This, in addition to factors such as the good monsoon and recently announced positive government initiatives should help revive the industry in the short term, he added.
Toyota Kirloskar Motor's (TKM) domestic sales were at 10,203 units last month as compared to 12,512 units in September 2018, a decline of 18 per cent.
ALSO READ: Toyota Kirloskar sales down 17% in Sept at 10,911 units; exports up 25%
Commenting on the sales performance, TKM Deputy Managing Director N Raja said, "The consumer sentiment continued to be subdued in September which has reflected in the sales slowdown in the industry."
However, the company expects consumer demand will see the much-needed revival resulting in better retails due to Navratri and Diwali, Raja added.
Honda Cars India Ltd (HCIL) on Tuesday reported a 37.24 per cent decline in domestic sales at 9,301 units in September as against 14,820 units in the same month last year.
"While the market remained tough in September, the auto sales saw an up-tick from this August which is a positive sign," HCIL Senior Vice President and Director, Sales and Marketing Rajesh Goel said in a statement.
Tata Motors PV sales in the domestic market during the month stood at 8,097 units as against 18,429 units in the same month last year, a drop of 56 per cent.
Commenting on the sales performance, Tata Motors President, Passenger Vehicles Business Unit Mayank Pareek said the industry continued to decline in September.
"Towards the end of the month, there was an encouraging response in terms of customer footfalls," he added.