New Delhi: Investors are rewarding Mahindra & Mahindra Ltd (M&M) for being more than just a tractor maker. Investments in areas ranging from auto components to technology have helped the fourth-largest auto maker by market capitalization to offer better returns to investors than its bigger rivals in the last year.
Its stock has risen 48% in the last one year. This compares with a 11% rise in the BSE Auto index. India’s largest car maker Maruti Udyog Ltd’s share price rose 11.7% and that of Tata Motors Ltd, India’s largest truck maker, by 6% over the same period. Bajaj Auto Ltd rose 13.2% in the same period.
“Diversification is better because companies would benefit from whichever product is performing well,” N. Sethuram Iyer, chief investment officer at SBI Funds Management Ltd, who manages Rs18,000 crore, said. He holds M&M shares.
M&M has six other listed subsidiaries ranging from financial services to forging units. All of these subsidiaries contributed 38% of Mahindra’s Rs8,797 crore gross revenue in the first half of fiscal 2007 and 26% to the net profit of Rs800.3 crore in the same period. “All of the Mahindra’s subsidiaries are doing well, “ said S. Ramnath, vice-president, equity research at SSKI Securities.
Tech Mahindra, the company’s software services unit, was listed in August 2006. In December, it bagged a $1 billion order from London-based BT Group Plc. for support services, the largest for an Indian company and the second-largest such order globally in 2006.
“Mahindra’s (own) profit growth has been good and margins expanded in the first half,” said Ashutosh Goel, analyst with Edelweiss Capital. There has also been “positive newsflow in terms of tie-ups and acquisitions”.
Mahindra had Rs4,726.7 crore in the first half of fiscal 2007, from selling its tractors and vehicles and excluding the money from its units. Profits from the same businesses contributed Rs590.7 crore or 62.5 % of overall profits. It’s also been able to sell the goods at better margins, analysts estimate.
In the past six months, Mahindra has announced two major alliances. The first is a joint venture with Renault Group for making 300,000 cars a year in India starting 2009 which will increase its presence in the country’s one-million-a-year passenger car segment. It is unveiling the locally made Logan sedan in April.
The second is a tie-up with Navistar International Corp. for making 250,000 trucks a year in Maharashtra, which will mark Mahindra’s entry in the medium and heavy commercial vehicle segment, which is 60% of India’s 4 lakh-a-year-truck-and-buses market.
The company has also been on an aggressive acquisition spree in the past 18 months. It acquired seven companies ranging from engineering services to forging units across countries such as China and Germany.