Ashok Leyland slaps notice on JV partner Nissan

Commercial vehicle major Ashok Leyland has slapped a notice on its joint venture partner Nissan, alleging that it is using the equipment, installed at Nissan's factory at Oragadam, to manufacture cars, while it needs to be used to produce light commercial vehicles (LCVs). Ashok Leyland and Nissan are partners in a JV to manufacture LCVs.

The development comes few days after Ashok Leyland's MD Vinod Dasari said that his was looking at 'win-win' solution for both the companies. He further said, in any JV there might be issues, but the company believes in partnerships. It may be noted, Ashok Leyland is also working on exit plan from another construction equipment business JV, for which it has joined hands with US-based John Deere.

Nissan confirmed the development and its spokesperson said "we have received the notice from Ashok Leyland and we are contesting it." The spokesperson did not comment further on the issue.

Ashok Leyland spokesperson and official were not available for comment immediately.

Sources close to the JV said that in the notice Ashok Leyland has alleged that Nissan is using the JV's assets to manufacture other products (cars) and the company also claims that the assets are owned by Ashok Leyland.

The assets, which Ashok Leyland is referring to are tools and machines which are installed at Renault-Nissan Automotive plant at Oragadam near Chennai, are owned by the JV and not by Ashok Leyland, said the source.

Ashok Leyland wants these assets to be seized.

It may be noted that both the partners were planning to set up a green field for LCV near Chennai, but due to slowdown in the market both the partners decided to use their existing facilities to manufacture such products. The JV partners have brought Dost, Stile and Evalia, of which Stile (marketed by Nissan) and Evalia (a MPV marketed by Ashok Leyland), which are more like cars, were stopped due to poor demand.

Ashok Leyland sold 24,628 LCVs from April 2015 to January 2016 as compared to 21,983 units a year ago, an increase of 12%.

In 2007, Ashok Leyland and Nissan announced a JV to develop and manufacture LCVs under both the Ashok Leyland and Nissan brands, in the 2.5-7.5 tonne segment. The JV was named as Ashok Leyland Nissan Vehicles, in which Ashok Leyland held 51%. However the JV had a rough ride in the Indian market.

The partners have formed three companies include Ashok Leyland Nissan Vehicles Pvt Ltd, the vehicle manufacturing company in which Ashok Leyland has 51% Nissan has 49% stake in, Nissan Ashok Leyland Powertrain Pvt Ltd, the powertrain manufacturing company owned 51% by Nissan and 49% by Ashok Leyland and Nissan Ashok Leyland Technologies Pvt Ltd, the technology development company owned 50:50 by the two partners

In November last year, Nissan Ashok Leyland Technologies (NALT) had filed an application with the Bureau of Industrial and Financial Regulation (BIFR). Nissan has confirmed the development and said it as per the Indian statutory process. The technology development company is owned 50:50 by the two partners.

According to the document filed with BIFR, the company was engaged in manufacture of automobiles (LCVs). The company, which as per Form A, employed 57 workers, was established on May 22, 2008 and owns a factory located in Kanchipuram district. The company's audited balance sheet (ABS) for fiscal that ended on March 31, 2014 showed its networth (NW) as Rs 52.05 crore consisting of paid up share capital Rs 52.05 crore and free reserves Rs nil.

The entire net worth was claimed to have been fully eroded due to the accumulated losses which stood at Rs 172.37 crore. The company's investment in plant and machinery was Rs 9.29 crore.

The company is engaged in the business of providing engineering design and development services for LCVs.

The aggregate investment in all three companies was planned to be around Rs 2,300 crore (around $575 million). The enterprise then announced that it will involve a capacity of 100,000 vehicles in the first phase, to be scaled up subsequently.

The JV was going through a rough ride. In May last year, Ashok Leyland said that it has decided to stop production of its manufacturing commercial passenger vehicle STILE, which has been produced by the JV company, with Nissan. The company decided to write down its investment in the vehicle JV by around Rs 224.19 crore. The joint venture reported a loss of Rs 791 crore in 2014-15.

In a press conference earlier, when reporters queried about the performance of JVs, Gopal Mahadevan, CFO, Ashok Leyland said that said that in automobile industry it is not new to withdraw the product if it is not doing well. He added the company had invested around Rs 500 crore in the joint venture, which was reduced by Rs 214 crore.