Buying Eicher's tractor business has worked well for TAFE.
One bold and tactical decision taken by Mallika Srinivasan in May 2005, changed things forever at Tractors & Farm Equip-ment. Srinivasan decided she wanted to buy out the tractors, engine and gears businesses of Eicher Motors. She did, for about Rs 350 crore and since then, the Chennai-based firm has never looked back.
For several years before that TAFE, or Massey Ferguson (the brand) to farmers across the country, was seen as a strong, conservative player in the Rs 8,600-crore tractor market. Despite being in a cyclical business, the company always managed to post profits. And yet, it struggled to clock Rs 1,000 crore in sales although it had been in business for nearly 40 years.
But with Eicher in its fold, TAFE became a stronger player, gaining market share. Srinivasan’s decision paid off as the business flourished and became more profitable. The company grew its consolidated sales to Rs 3,425 crore in 2007-08 and the profit before tax increased 30 per cent, over the previous year, to Rs 311 crore. This year, TAFE is likely to gross sales of Rs 3,700 crore even as the two brands have managed to sustain their combined market share of 22 per cent in a hugely competitive market, at a time when the industry is going through a rough patch.
The Eicher buy was complementary. It widened TAFE’s product range and reach and brought scale and synergies to a highly-competitive business even as the tractor market was consolidating – TAFE bought Eicher, M&M bought Punjab Tractors while smaller players like Escorts were fast losing market share.
Eicher was a strong player in the sub-25 HP horsepower segment while TAFE’s strength lay in the bigger categories– 35 HP & more– which constituted the bigger segments of the market. Eicher also had better reach in key markets like Punjab, Haryana and central Uttar Pradesh, which complemented TAFE’s presence in other regions. The Eicher deal also brought with it some key linkages – engines and gears– that added enormous value.
“Eicher was a strong strategic fit in terms of product range, geography, product positioning and brand value. What we did was to back up the acquisition with a clear plan on how to add value to the business,’’ says Srinivasan, who handled the buyout carefully, aware that more often than not, acquisitions fail or don’t really add too much value.
What seems to have helped is Srinivasan’s decision not to merge Eicher with TAFE, but leave them as two separate companies–Eicher is a fully-owned subsidiary of TAFE. The separate networks and brand positioning, were retained. “This way we were able to leverage their strengths. We acquired Eicher for Rs 350 crore in 2005. Today, in less than three years, the enterprise is valued at three times the original price,” claims Srinivasan.
Indeed, it is to the credit of Srinivasan and her team at TAFE, that the company has never posted a loss. The secret: TAFE has always tried to time its investments in such a way that it is able to achieve break-even within an up-cycle that lasts for around 3-4 years. The industry is not short of big brands from companies such as Mahindra & Mahindra, Escorts and multinational players like John Deere and New Holland. But TAFE has found its place in the sun.
