Mumbai: The maker of utility vehicles such as Bolero and Scorpio, Mahindra & Mahindra Ltd, can assure itself of steady revenue growth because of its diversified portfolio of products, analysts say.
The company, which reports its second quarter results next week, is expected to increase revenues 9.97% to Rs2,694.48 crore, while net profit will dip 10.92% to Rs225.02 crore, according to a Mint poll of five analysts. M&M’s profit may have taken a hit because of lower contribution from tractor sales and higher raw material and marketing costs. In the year-ago quarter, it reported revenues of Rs2,450.1 crore and a net profit of Rs252.6 crore.
“We have a positive outlook on the company on a shortterm as well as long-term basis,’’ said Vaishali Jajoo, automotive analyst with Angel Broking Ltd. “In the short term, the listing of a few of its key subsidiaries can unlock value for shareholders, while in the longer run the company’s initiative taken towards diversifying product portfolio and increasing presence in overseas market will pay off.”
Since its inception in 1945 in pre-independent India, M&M has moved from being just a maker of utility vehicles to a car maker and component maker. It has aligned itself with the world’s top vehicle makers and has partnerships with the Renault-Nissan combine and International Truck & Engine Corp. (ITEC) of the US.
On a roll: Anand Mahindra, vice chairman of M&M.
It has also lined up investments of Rs6,400 crore over the next three years towards capacity expansion, new product development and research & development. Some of M&M’s subsidiaries and associate companies in which it has a stake are in businesses such as component making and information technology services; one such company plans to enter the business of retailing. In fiscal 2006, overseas operations contributed to barely 19% of revenues; this rose to 27.5% in the last fiscal.
While automotive units contributed to 42.5% of sales of the Mahindra Group in fiscal 2006, a year later this fell to 36.4%, with businesses such as IT services increasing their share.
M&M has made some 12 acquisitions since 2004, of which eight are in the Indian market and the rest are overseas. The acquisitions overseas have been mostly of component makers, barring a tractor maker in China, called Jiangling Motor Co.
While it hasn’t pulled out the cheque book for headline acquisitions of, say, car makers, it has overcome the challenge of not having indigenous made cars in its product offering by cobbling them together through its partnership with France’s Renault SA. Together, they sell the no-frills Logan in India through a 51:49 joint venture (M&M has the higher stake).
And that’s helped M&M gain a foothold in the Indian passenger car market—the fastest growing segment among vehicles. The Indian market, with its low penetration of eight cars per thousand, has also become a sought-after one, with overseas and local firms announcing investments of about Rs30,000 crore in the sector.
To prime itself up for future competition, M&M also has a three-way manufacturing joint venture with Renault and its associate, Japanese car maker Nissan Motor Co. Ltd, in Chennai with joint investments of Rs4,000 crore to make 400,000 cars and utility vehicles for all three partners, apart from engines for Renault and Nissan, by 2009. M&M holds half of the equity in this project, while the rest is split between Renault and Nissan.
Its partnership with Renault and Nissan gives it the benefit of understanding both the European styling, comfort and convenience as well as Japanese manufacturing efficiencies,” said V.G. Ramakrishnan, director (Automotive & Transportation Practice), South Asia & Middle East, Frost & Sullivan.” They would obviously take this learning and bring an improvement in their own products.”
Meanwhile, M&M’s own ambitions though have focused firmly on dominating the space for multi-utility vehicles, which it not only makes in India but also sells in overseas markets.
Its Scorpio pickup is shipped to countries such as South Africa, Russia, Malaysia and European nations such as Italy, France, Spain and Portugal. It also assembles the Bolero in Uruguay while it sells completely built-up units in Chile.
More recently, M&M has entered Brazil through a local partner Bramont Ltd to assemble Scorpio single and double cabs there. It will also be able to export its vehicles from Brazil to the neighbouring countries of Uruguay, Paraguay and Argentina because of a regional trade agreement among the Latin American countries.
In India, the company is looking beyond the Scorpio. M&M will roll out the Ingenio multi utility vehicle from its Nashik plant next year. It also plans to launch new commercial vehicles through Mahindra International Ltd, a 51:49 joint venture with ITEC.
Separately, it is also developing a “mass-market passenger car and cargo vehicle as well as an upmarket SUV”, Pawan Goenka, president (automotive) had said earlier.
“M&M globally wants to be a niche player in the SUV segment. Its tieups with Renault-Nissan will help increase its turnover significantly, allow it to become a mass market player and also help in understanding car manufacturing and design,” Ramakrishnan said. Goenka declined to comment for this article because of the company’s upcoming quarterly results.
The launch of the Ingenio will put M&M on a head-on collision with Toyota Kirloskar Motors Ltd, whose Innova Rs.multi utility vehicle’ has a share of more than 40% in the segment. The Ingenio will be M&M’s first MUV, but the company is a market leader in the UV segment with a share of 47% with such models as the Scorpio, Bolero, Maxx, Commander and Invader.
Here, it faces stiff competition from Tata Motors Ltd’s Safari and Sumo models. Earlier this month, Tata launched back-to-back variants of the Safari and Sumo, namely, the Safari Dicor 2.2 VTT and the Sumo Victa Turbo DI. A new one-tonne pickup, christened Xenon, is also expected from the Tata stable very soon.
Apart from competitive pressures, M&M will have to address the challenge of slowing consumer purchases in a economy that is showing signs of losing some steam amid higher lending rates. Lending rates have risen by as much as 5 percentage points in the last three quarters to a five-year high, and this has dampened sales of commercial vehicles including tractors. M&M’s tractor sales, including exports, were marginally down 2.76% in the first half of the year. Even so, it is further consolidating its hold on the tractor segment in India, where it has a 40% market share.
The company has acquired 63.3% in Punjab Tractors Ltd (PTL), giving it a strong position in North Indian markets such as Punjab and Haryana, though stagnant agriculture growth at present isn’t helping the firm sell more tractors.
“The PTL acquisition has given capacities but the tractor industry slowdown will take a higher time for the acquisition to be earnings per share accretive,” explained Huzaifa A. Suratwala, senior analyst at Network Stock Broking Ltd.