M&M plans to exit loss-making international subsidiaries in a year

Mahindra & Mahindra will exit loss-making international subsidiaries and entities over the next 12 months and follow stringent capital allocation norms as it seeks to lend a sharper focus on its core auto and farm equipment businesses, the company’s management said after reporting a pre-tax loss of Rs 1,761 crore for the March quarter.

The move is prompted by the steep impairment loss reported by the consolidated entity as SsangYong Motor (SYMC), its Korean subsidiary, and Genzee, its two-wheeler entity in the US, turned in losses. It marks a change in tack by the Anand Mahindra-led firm, which over the past decade has spread itself thin through a raft of acquisitions in India and abroad in the auto and farm equipment sector.

In a post-earnings web-conference with investors, Anand Mahindra, chairman of the tractor-to-technology conglomerate, said the firm is re-calibrating its globalisation strategy and looking to sharpen focus on getting returns on investments quickly.  “We are going to be far more calibrated in our globalisation. I want to make it very clear that we are not a company that would suddenly become like a turtle and go inwards… That is the knee-jerk reaction the whole world would see. We are going to calibrate our growth opportunities globally and focus on getting returns as quickly as possible and exit much faster if we find we are not on track.  We will also follow a principle of a much more stringent oversight.”

Defending the capital allocation plan, Mahindra said the firm had never “starved the core business (auto and farm equipment) of capital and there was never any diversion of the capital requirement from the core businesses”. Analysts are confounded by the sheer size of the conglomerate and the challenges it poses on the capital allocation and execution fronts. The group comprises 179 subsidiaries, 30 joint ventures, and 28 associates.

They said the write-off on SYMC does assuage the investor concern but they were unsure how much more the group could consolidate and re-calibrate under the current circumstances. “The impairment charge taken on SYMC is a bold step and shows the group is ready to sell it off.  But there is only so much it can do,” said Mahantesh Sabarad, head-retail research, SBICAPS.

Mitul Shah, vice-president research, Reliance Securities, said: “M&M’s valuation has been taking a hit due to a lower return ratio and its capital allocation policy. The capital allocation strategy with clear quantifiable targets on return on equity gives confidence to investors and will lead to a continuation in its re-rating.” 

M&M’s strategy of re-crafting and revisiting its subsidiaries comes amid the Covid-19 pandemic and anaemic economic growth in India and other markets. Mahindra assured investors the path it embarked upon is not a short-term one and the company plans to remain steadfast on it even after the tide turns.

As part of its re-calibrated globalisation plan, M&M announced the winding up of its US two-wheeler business.  The company is in talks with investors for SYMC and is open to ceding control if it gets a buyer, Pawan Goenka, managing director, M&M.