Mahindra & Mahindra (M&M), which straddles businesses across automobiles, technology, financial services and real estate, is in the last phase of a multi-year corporate clean-up exercise. The process will see the group exit businesses that have failed to meet an internal target of an 18% return on equity (RoE). The group’s net profits before exceptional items in FY22 came in at Rs 6,236 crore.
In the hunt for a committed 18% RoE, M&M has let go off subsidiaries like SsangYong, GenZe and GippsAero. It also sold stakes in Mahindra Susten, Mahindra CIE Automotive, Mahindra Sanyo Special Steel and Mahindra First Choice Services, in addition to PMTC. At the same time, the group has invited investment partners into new businesses. In the process, it is shedding flab; M&M now counts over 250,000 employees.
Also read: MG Motor India and Bharat Petroleum inaugurate 12 fast EV chargers
With the exception of luxury carmaker Automobili Pininfarina, which is performing below par, M&M says no more corrections are required; the recurring cost of impairments, the management points out, will soon be gone. Anish Shah, MD & CEO, said post the Q3FY23 results, the group was effectively left with just Pininfarina which “we have not completely got back on track. There is hardly anything that is left in category C”. Category C houses those companies that have fallen short of M&M’s expectation and needed a course correction.
The structure of the group, whose revenues are nudging Rs 1 trillion, has been likened to that of Berkshire Hathaway Inc. At the same time, chairman Anand Mahindra has always been clear the group is not a conglomerate but a federation. “If you look at a spectrum between General Electric and Berkshire Hathaway, GE is a conglomerate, one single monolithic company with divisions, Berkshire Hathaway has multiple investments. M&M is more Berkshire Hathaway than GE,” Mahindra has observed.
In the December 2022 quarter, the company took an impairment charge of Rs 629 crore, pertaining to the valuation of assets in the trucks and buses division. In Q4FY23, it will provide for the impairment of Peugeot Motocycles.
However, CFO Manoj Bhat clarified that Pininfarina, for which the group has been looking for an investor, “does not have any carrying value of its own and so will not have a big impact on the P&L”.
Meanwhile, German investment company Mutares SE & Co acquired a 50% equity stake and a controlling stake of 80% in Peugeot Motorcycles (PMTC). Since the deal, which saw M&M yield control of PMTC, was done on January 31, it would reflect in the March quarter results, M&M executives added.
While the truck and bus business unit is in Category C, the management has decided to absorb it into M&M. Rajesh Jejurikar, executive director, M&M, said the demand was good partly with the industry bouncing back. “We see a series of upsides following our entry into the intermediate commercial vehicle segment and easing of supply chain issues,” Jejurikar observed.
According to sources, the unit will now be spearheaded by Gurpratap Boparai, former head of Volkswagen Group in India, who joined as the CEO of M&M’s European automotive business in January 2022. A mail sent to M&M remained unanswered at the time of going to press.
Also read: UVs drive Mahindra & Mahindra’s auto revenue growth in Q3
The loss-making Classic Legends (CLPL), an umbrella company housing three legacy motorcycle brands – Jawa, Yezdi, BSA –, is the other entity that M&M continues to bet on. Shah believes the business will yield the returns. “I would look at a 15-18% ROE in the next five years. There is a lot of momentum for the brands we have. The business is in early stages and growing, but we believe there is a tremendous potential there,” Shah said. M&M’s revenues in FY22 stood at Rs 90,171 crore.
