Mahindra & Mahindra (M&M) has been on a bit of a roll recently. A spate of global tie-ups and domestic acquisitions, some announced and others under implementation, is aimed at making M&M into a leading automotive player. With the acquisition of an 80per cent stake (for Rs 35 crore) in China's Jiangling Tractor, Mahindra & Mahindra(M&M) has become the fourth-largest tractor company in the world. The company already sells its utility vehicles in South Africa, Latin America and it is seeking to break into other markets. An alliance with Renault, will soon see the company launch Logan, a mid-sized car in the domestic market.
Recently, it tied up with truck-maker International Truck and Engine Corporation to launch heavy trucks. For a company that did not do much of note in the happening-1990s, the recent flurry of activity is intended to make up for lost time.
Today, M&M is a company in a hurry and Anand Mahindra, the company's MD says, ”If you can compete globally, only then can you survive at home.” His vision is to be the global number one in tractors and utility vehicles and double his group turnover from the current $2.5 bn in three years.
M&M turned in a powerful performance in FY05. It reported a 40per cent growth in net profit for the quarter-ending June '05, at Rs 145-crore, against Rs 104 crore for the corresponding quarter in the previous year. M&M said gross sales and income from Q1 operations of the current fiscal was Rs 2,049 crore, as compared to Rs 1,686 crore in the same period last year.
The story of M&M's resurgence begins in '01, when it wasn't really in the best financial shape(revenues of Rs 4,352 crore and a net profit of Rs 120 crore). That was when Bharat Doshi, the group's CFO, launched a financial re-engineering program that revived the company's financials and which is now focused on making M&M a global player. Says Kalpesh Parekh from ASK Raymond James, ”A company cannot be competitive if it restricts itself to one market. Going global helps to get competitive and it also de-risks the business.” M&M has a war chest of Rs 700 crore that will help its efforts to go global.
Mahindra wants to capture the niche for rugged, cheap and reliable utility vehicles that has been vacated by Land Rover, as it has gone up-market. It is here that the company's recent JVs (it has a 51per cent stake in both) with International Trucks and Renault will kick in. M&M hopes that synergies that arise from JVs, will be useful in M&M's global journey. It admits that it has also learnt from the not-so-successful joint venture with Ford.
The recovery in the farm equipment and automotive sectors is largely due to volumes. Of course, Scorpio, part of the automotive division, has overshadowed performances of all other products in the line-up. M&M has even seen its market share rise to 55per cent in the UV sector and 24per cent in tractors, in the face of fresh launches by competitors.
Tractors certainly did better; inventories are lower. This, while the performance of the farm equipment sector in the previous year was generally weak and related more to cost-cutting than volume growth. M&M's farm equipment division gameplan is driven by the aspiration to become the world's largest tractor manufacturer by '08. Exports also saw a big thrust the previous year from a very low base. The Scorpio brand has elbowed aside domestic and multi-national rivals like the Japanese brands Toyota Innova and the Tata Sumo\Safari in a span of three-four years.
Adds another analyst from a Mumbai-based brokerage, ”M&M launched affordable products in the UV sector. Thereafter, the company's organisational structure has been in a constant state of flux and growth has indeed been exponential.” While corporates complained of sluggish market growth, M&M moved deeper into the semi-urban rural markets, building its distribution system, launching products to suit the budgets of the Indian consumer.
Last year, M&M made a bid to acquire a large tractor maker in Europe. The bid didn't go through, but the exercise underscores the company's global ambitions in the tractor business, in which it is India's largest player. Recently, it has made a bid to acquire Universal Tractors based in Romania.
Last year, it launched aggressive business process outsourcing in the auto components sector, with initiative with Mahindras Systems and Automotive Technologies(MSAT) that, apart from getting into the business of manufacturing auto components, will also offer engineering and design services to auto majors, even take care of sourcing.
M&M sees MSAT emerging as a one-stop global component sourcing shop that will “design, forge, machine , tool and deliver components” and reach the $1 bn mark by 2010.
Although the ancillary industry in India has done well in the past three years by improving its quality, it is a patchwork quilt of small, family-owned companies. There is a great opportunity for consolidation while still continuing to harvest the entrepreneurial instincts of the owner-managers. M&M's acquisition push would complement its Rs 300-crore a year capital expenditure for the next three years to be spent on product upgrades and variants as well as expansion of capacity in the automotive business.