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Business News/ Companies / News/  M&M on track to achieve 18% return on equity: CFO
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M&M on track to achieve 18% return on equity: CFO

Automaker is evaluating loss-making biz across its group firms to reduce cash burn

M&M group chief financial officer, deputy managing director Anish Shah. (MINT_PRINT)Premium
M&M group chief financial officer, deputy managing director Anish Shah. (MINT_PRINT)

Mahindra and Mahindra Ltd’s (M&M) plans to improve return on equity (ROE) and ensure appropriate capital allocation across businesses is on track, Anish Shah, group chief financial officer and deputy managing director, M&M, said on Wednesday.

“If you look at 2002 to August 2018, M&M was the best-performing stock on Nifty. The key driver of that was the financial performance. Earnings grew 34% annually. We had an average ROE of 22% and there was a very strong cash generation. So, we are going back to those three metrics to achieve the fiscal discipline we had then," Shah said in an interview about the company’s strategic plan of achieving 18% ROE across all business units.

The M&M management is evaluating loss-making businesses across its core and non-core group companies globally to reduce cash burn and prioritize capital allocation to businesses that offer visibility of at least 18% ROE in the near to mid-term.

“There were some bets that were taken that did not quite work out as planned and this will happen sometimes. However, it is important for us to readjust and go back to that fiscal discipline," Shah said.

M&M has already shuttered the US-based electric bike startup GenZe and Australia-based small aircraft manufacturer GippsAero Pty Ltd, a wholly owned subsidiary of group company Mahindra Aerospace, as part of its action plan to offload loss-making units.

It has halted capital infusion into its ailing Korean subsidiary SsangYong Motor Company (SYMC) as it continues to actively aim for the sale of its 75% stake. Further investment in its American unit, Mahindra Automotive North America (MANA), has also been halted as the company looks for more clarity on the business model.

“We looked at every international subsidiary that made a loss in FY2020. It included SYMC, which involved the largest losses, followed by GenZe and MANA. We also continue to evaluate other overseas units such as Mahindra AG North America (MagNA, the US-based farm business), Erkunt Traktor, Hisarlar, Sampo Rosenlew and Automobili Pininfarina," Shah said.

The four business units from the farm equipment sector, including MagNA, Erkunt, Hisarlar and Sampo, have seen improved financials on recovery in Q2, Shah said.

“So, the chances of them bouncing back to our financial benchmarks is pretty good. Sampo particularly offers a strong quantifiable strategic benefit," he said.

MagNA recorded a 41% growth in retail sales in Q2, while Turkey operations, involving Erkunt and Hisarlar, are seeing a turnaround, Rajesh Jejurikar, executive director, auto and farm sectors, M&M, had said on Tuesday.

The company is waiting for clarity from the ongoing legal battle with Fiat Chrysler Automobiles (FCA) on the Roxor utility vehicle, Shah said with regard to MANA, where M&M withdrew from participating in the US Postal Service order in the June quarter citing inadequate financial returns on investments required.

Last year, MANA was hit by a lawsuit from the maker of Jeep SUVs, FCA, over Roxor’s design. The legal tussle prohibits the Indian company to produce and sell Roxor in the US.

“We sold out all the units we made as part of 2019 and 2020 models. The 2021 model is in court right now. The initial ruling came in our favour that the model does not infringe anything. The final ruling is expected soon," Shah said.

“The first thing we are looking at is a clear path from a legal standpoint. Once we have a clear path, we will look at the business plan and it has to be sustainable according to our benchmarks. If this works, we will invest in it, or else we will not," he added.


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Published: 12 Nov 2020, 08:09 AM IST
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