Mahindra & Mahindra's Iran expansion may hit US sanctions bump

Mahindra & Mahindra's (M&M) plan to venture into the Iranian automotive market, for which it recently partnered Azim Khodro, is facing some uncertainty after the US reimposed sanctions on the Persian Gulf country.

A company spokesperson, in response to DNA Money queries, said that the implications of the sanctions are being studied and a "considered decision will be made at an appropriate time".

The spokesperson did not say as to how they will work around the sanctions, as the banking channels will remain affected. A similar situation is being faced by other Indian companies operating across various sectors in Iran.

Even during the recent quarterly results announcement, the company's plans for Iran were not mentioned while managing director Pawan Goenka talked about other overseas markets including Bangladesh, Philippines, South Africa, Chile, Italy, Tunisia.

An analyst, who did not wish to be named, said that M&M will have have to wait and keep a watch on the situation as European Union members and China are still holding the Iran nuclear deal.

DNA Money had on February 12 reported about M&M's collaboration with Iran's Azim Khodro to import and distribute Mahindra vehicles into the country.

XUV500, KUV100 and Scorpio Pick-up are some of the brands which are being considered for launch by the end of this year, subject to further testing and validation. The company already sells farm equipment, tractors and other products in the country.

Iran's market, which recently adopted stricter automobile safety and emission norms, is dominated by French and other European automotive companies. Also, the country warrants a high degree of indigenisation of the vehicles, or else the automakers have to shell out high Custom duties.

In May last year, Mahindra Group-owned designing and engineering firm Pininfarina had signed a £70 million deal with Iran Khodro (IKCO) to produce a new modular platform which can accommodate at least four vehicles. Pininfarina, an Italian company, is involved in the entire process of car production - right from concept design to the final product.

After oil and gas, the Islamic Republic's biggest sector is the automotive industry as it contributes about 10% of its gross domestic product and gives employment to over 4% of the country's population.

According to the industry analysts, there was an explosion in lran's car manufacturing sector during the years 2000-2013, which fizzled out after the imposition of sanctions by the US in 2013.

However, the sector has seen some surge in recent years after the country signed the nuclear deal in 2015, with European companies including Renault, Peugeot, Citroen trying to reestablish themselves in the market.

The Chinese car makers, not to be left behind, are pursuing the market aggressively. The industry is still trying to gauge the impact the fresh sanctions will have on the Iranian economy in general and automotive industry, in particular. Reports suggest that under the current circumstances, the leading European car manufacturing companies have indicated their readiness to continue with their operation in Iran but are attempting to renegotiate the terms of the deal. China and EU have pledged the nuclear deal after the US pulled out of it.