Mahindra & Mahindra (M&M), the country’s largest utility vehicle manufacturer, plans to merge the

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subsidiary that manufactures the Verito (erstwhile Logan) into itself as it strengthens its hold over the passenger car venture that is now seeing a revival of fortunes.

Merging the Logan manufacturing division with itself would help M&M work more aggressively on product development and also give it a tax shelter that can be used to set off profits and reduce the combined tax outgo.

“Since the Verito division made losses, M&M will reorganise the share capital and share premium account by setting off portion of the existing losses incurred by the division,” said a senior company official who did not wish to

be named.

After M&M acquired French carmaker Renault’s 49 per cent stake in the Mahindra Renault joint venture that manufactured the Logan passenger car in April 2010, it continued operating the division as a subsidiary of M&M. “There is synergy in the manufacturing, product development and sourcing of Mahindra Vehicles division and hence we are moving the Verito vehicle business to M&M,” Rajesh Jejurikar, chief executive – automotive division at M&M told Financial Chronicle.

The company will seek shareholders approval for the merger at the annual general meeting in August 2011, he added.

Renault exited the JV after sales of Logan fell to a paltry 350 units per month. According to Society of Indian Automobile Manufacturers (Siam) data, Logan sales fell to 5,332 units in 2009-10 from 13,423 units in 2008-09. The decline also resulted in losses of over Rs 600 crore for both the partners during 2007-2010.

Since M&M makes healthy profits, the JV’s carryforward losses can be set off against M&M’s profits resulting in lower profits reported under the provisions of the Income Tax Act.

After M&M acquired Logan, sales of the car improved to 10,009 units in 2010-11. The company, in April this year, rebranded the car as Verito. M&M sold 2,297 units of Verito in the first two months of this financial year, according to Siam’s May 2011 data.

According to M&M’s annual report for 2009-10, the share capital of Mahindra Renault was Rs 200 crore. M&M had invested Rs 154 crore in the JV.

Deepak Jain, assistant vice-president at Sharekhan, said, “M&M was operating the Verito division as a subsidiary as it was meant to roll out more products with Renault. Since there is no JV now, it is viable to merge the division into the company. That way, M&M will be able to utilise the assets for developing other products and leverage the balance sheet.”

M&M, however, will continue sourcing 1.5-litre diesel engines from Renault.