Secrets revealed behind Ashok Leyland Nissan JV Break-up

Nissan MUV

Nissan MUV

Nissan and Ashok Leyland came together in 2008 to make light goods vehicles such as vans and small trucks. They set up three different companies—for vehicle manufacturing, engine manufacturing and technology development. Interestingly, the joint venture does not have a manufacturing unit of its own and uses the facilities of Renault-Nissan India Pvt. Ltd and Ashok Leyland to manufacture vehicles such as Dost, Partner, Mitr, Stile and Evalia.

On 19 January, Vinod Dasari, managing director of Ashok Leyland, and Philippe Guerin-Boutaud, corporate vice-president of Nissan’s global LCV business met in Singapore to mark the contours of Nissan’s exit from the partnership to make light trucks and vans. Under this agreement, Nissan would transfer all its shares to Ashok Leyland at Rs.1, and exit the venture and put Rs.250 crore in an escrow account to compensate vendors working for the venture. Ashok Leyland-badged products such as Dost, Partner and Mitr (manufactured in Ashok Leyland’s Hosur plant) will continue to be manufactured and sold and the company would pay 1% royalty to Nissan on their sales for five years. Nissan also agreed to pay Rs.12 crore to Ashok Leyland in lieu of assets being used by Renault-Nissan Alliance India Pvt. Ltd. Nissan would surrender the assets to produce Stile and Evalia to the JV while it would continue to have access to suppliers for parts directly to sell these models.

The reason behind the JV break-up is around Rs.200 crore vendor liability figures quoted by Nissan are not in the joint venture’s books, adding the overall liability figures are only around Rs.700 crore, far less than Rs.1,200 crore quoted by Nissan. The Rs.1,200 crore figure includes debt, required fresh cash infusion and compensation for vendors. To be sure, even before the talks for terminating the joint venture started, both parties had expressed interest in buying out each other’s stake in the joint venture.

However, things did not go according to plan. Business milestones were not met and losses mounted. In the year ended 31 March 2015, the venture reported a loss of Rs.791 crore. Ashok Leyland also wrote off Rs.214 crore as impairment based on the value of its investment in the joint venture.