M&M’s Investment Strategy To Swerve Into Profits

Mahindra & Mahindra (M&M) has come a long way from where it started out, manufacturing and selling tractors, to gradually diversifying into utility vehicles (UV), passenger cars, commercial vehicles and two-wheelers. Although the company has made its presence felt in all these segments, it has surely not been an outperformer in all of them so far.

Lately, various macroeconomic conditions have led to poor sales of tractors and commercial vehicles. In the last few quarters, though, M&M has been able to maintain a relatively more profitable situation overall due to its outstanding performance in UVs and passenger cars. In FY12, although the net loss from Mahindra Navistar Automotives (MNAL) and Mahindra Two-Wheelers was Rs 238.34 crore and 309.96 crore respectively, the company managed to post a profit of Rs 3126.66 crore, growing by 1.52% on a yearly basis.

In February 2011, M&M took a brave stride forward in acquiring South Korea-based automobile manufacturer Ssangyong, a loss-making company that was mired in labour issues, with a bold motive of turning it around. In a recent statement, M&M has decided to invest USD 900 million (approximately Rs 5000 crore) towards the development of products over the next four years. The total sales of Ssangyong grew by 6.83% in CY12. Its exports, which constituted for 60% of the total sales, declined by 1.79% YoY. However, its domestic sales, which grew by 23.41%, saw the overall performance strengthening.

M&M has been trying to make a turnaround in its other subsidiaries as well. This is evident from the continual news flows. Recently, it has been reported that it would invest up to Rs 7500 crore in MNAL and Mahindra Navistar Engines (MNEPL), which it recently bought out from its JV partner Navistar. It has also given the entities a time frame of three years to turn profitable.

Similarly, the two-wheeler sales too have been unimpressive since M&M’s entry into the segment. Just last week, it launched two new 110 cc motorcycles, Pantero and Centuro. Positioned in the eco-commuter segment, fully designed in Mahindra’s R&D facility at Pune, packed with features and competitively priced, these motorcycles are expected to boost the performance of this subsidiary.

Continued investments and long-term planning can help the company unlock value from these subsidiaries. The prospective gains of M&M have been one of the reasons for our recommendation of the scrip to investors. Its continuing efforts towards value building across categories makes us maintain our bullish stance on the company.