M&M won't pump more funds into Pininfarina, seeks external investors

The firm is also "closely monitoring" Peugeot Motorcycles, Mahindra Trucks & Buses and Construction Equipment businesses as their "performance is below expectation"

Mahindra & Mahindra has no plans to make further investments in Automobili Pininfarina (AFP) and is looking for external investors, it said at Edelweiss Singapore Conference 2022. The company is also “closely monitoring” Peugeot Motorcycles, Mahindra Trucks & Buses and Construction Equipment businesses as their “performance is below expectation.”  

The aforementioned businesses have been under performing and have been under review since the last couple of years.

Under the new capital allocation policy that M&M embarked on in 2020, the company had said every investment must generate an 18 per cent return on equity or have a quantifiable strategic impact. M&M will exit investments that don’t have a clear path to profitability.  

Following the onset of the pandemic, M&M housed its subsidiaries into three different categories. While subsidiaries which had a clear path to 18 per cent RoE (return on equity) were housed in Category A, those with delayed or unclear paths to profitability but quantifiable strategic impact, were put in Category B. 

Category C housed those firms which had unclear paths to profitability. For this M&M explored options like forging a partnership, exploring an alliance and a full shutdown. Loss-making subsidiaries such as SsangYong, GenZe, GippsAero, Saboro Dairy and Mahindra First Choice Services belonged to Category C.

As RoIC (return on invested capital) drags get addressed, the true franchise value of the tractor and LCV businesses would be recognised in our view. Furthermore, some of the RoIC drags have started contributing to cash flows post-restructuring. Retain ‘BUY’ and SoTP-based (sum of the parts) target price of Rs1,436, wrote Chirag Shah, analyst at Edelweiss Securities in the report.