M&M says their mid-term targets of attaining 18 percent ROE, 15-20 percent growth in earnings per share and creating a billion-dollar valuation of emerging businesses are well ahead of plans.
12 Nov 2022 | 7839 Views | By Amit Vijay M and Ketan Thakkar
Having entered into an MoU with European private equity major Mutares SE & Co to sell a controlling stake in Peugeot Motocycles on Thursday, Anish Shah, MD of Mahindra & Mahindra said, “all problems are taken care of, Mahindra & Mahindra is now in a growth mode.”
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Having entered into an MoU with European private equity major Mutares SE & Co to sell a controlling stake in Peugeot Motocycles on Thursday, Anish Shah, MD of Mahindra & Mahindra said, “all problems are taken care of, Mahindra & Mahindra is now in a growth mode.”
This move is part of a strategic plan that was curated at the height of the Covid-19 wave which called for exiting loss-making units, divesting in non-core assets with an eye on reducing cash burn and prioritising prudent capital allocation to achieve 18 percent return on equity. The process has been completed, said Shah, and the group will continue to focus on financial discipline.
“We are in a growth mode right now. All our problems have been taken care of. We are looking to grow this business forward. At this point, nothing else is under review. We have done a lot. We were looking at Peugeot Motocycles closely (before the exit). The other businesses are doing well,” Shah said.
The maker of Scorpio & XUV 700 said that Mutares will acquire 50 percent of equity and a controlling stake of 80 percent in Peugeot Motocycles, but the company has decided to retain a 20 percent stake in the company.
The stake it still owns will act as an investment, M&M said, as it sees a significant upside for the business. Mutares will make all future investments and the shareholders will reap the returns in the long term, Shah said post the Q2 earning results.
On the international farm subsidiaries, Shah said, “The international subsidiaries for farm businesses are profitable. We are at 20.1 percent ROE, which is a reflection of all the work we have done. And we will have financial discipline going ahead.”
Shah recalled that the company has exceeded its mid-term plan of achieving 18 percent ROE or return on equity, with the company reporting 20.5 percent ROE in the first six months of this fiscal year.
M&M is likely to end the year with 100 percent growth. Speaking about the second commitment of growing earnings per share (EPS) by 15-20 percent, a confident Shah said, “We are setting the bar higher now, we will set the base as FY22 for EPS. The company posted a 46 percent jump in net profit to Rs 2,060 crore with revenues jumping 57 percent to Rs 20,839 crore led by a strong growth in SUV volumes and improved operating leverage.
Many of the emerging businesses or growth gems, as they are referred to within M&M, are doing well. Shah said that Mahindra Lifespaces has already reached a valuation of a billion dollars and even its renewable energy business Susten is well on its path to reaching a billion dollars with the business currently enjoying a valuation of Rs 2,500 crore.
Turnaround Time
The turnaround plan was defined in FY21 and in less than 24 months, its core business of utility vehicles has seen its monthly volumes double. The company claims it has already become a leader in the SUV space, in terms of revenues and it is expanding capacity by over 70 percent to cater to the rising demand for its SUVs. The company was even able to raise $250 million on its newly formed EV company with a valuation of $9.1 billion.
Over the past two to three years, Mahindra has taken some tough calls. It exited the South Korean SUV maker Ssangyong Motor, electric two-wheeler company in US, Gen Ze and Mahindra First Choice Services. Hisarlar’s metal fabrication business in Turkey and the dairy business in Saboro were also sold. Pulling out of its proposed JV with US car maker Ford Motor Company and restructuring the Mahindra North America Business were some more critical decisions taken. All this has helped Mahindra restructure its business and sharpen its focus on growing ventures.
On the next round of fund-raising for the EV company, Shah said, “The momentum for the brand is good, we are seeing great interest for the vehicles from consumers. Even with investors, the interest is high. We are focused right now on building sales (for EVs with XUV 400) and then the discussion will start. There are no specific discussions at this point for fund raise on EVs, but they will start.”
Responding to a specific question on whether Mahindra will be exiting the two-wheeler space and on the future of Classic Legends, Shah said there is no need to relook at how the business is progressing as it is on the right track. “We do believe in Classic Legend brands. Jawa, Yezdi and now the upcoming iconic British motorcycle brand BSA that will be launched globally, will shore up our presence as we continue to remain optimistic that the business will grow.”
The global launch of BSA is planned for next quarter and it will help Mahindra build presence in the premium motorcycle business and take Classic Legends to the next level, the company said. In addition to this, the company’s partnership with Hero Electric for contract manufacturing Hero Electric’s two-wheelers is very much ensconced and secured.
On the future of its commercial vehicle business, Rajesh Jejurikar, ED of automotive and farm division said, "We do feel that we can turn that business around, we are doing well. There is some good demand momentum in the industry. We expect the industry to further pick up. We have new products which are competitive in BS VI. We will continue to invest and build that business (truck and bus business) going forward."