The country?s third-largest auto player, the Rs 44,000-crore Mahindra & Mahindra Ltd is looking to rejig the structure of its auto business. For the first time, all vehicles ? cars, utility vehicles, tractors, two-wheelers and commercial vehicles (CVs) ? will be brought under one umbrella.
Confirming this, Pawan Goenka M&M?s president, automotive & farm equipment businesses, recently elevated as an executive director to the M&M board, added that the reporting structure will change with the two-wheeler unit now also reporting in. This business, together with the two CV arms, has piled up accumulated losses of close to Rs 2,000 crore.
The reorganisation begins with Rajan Wadhera, currently R&D head (CEO for technology, product development and sourcing), taking charge of Mahindra Trucks and Buses (MTBL). Rajesh Jejurikar, now CEO of M&M?s tractor & farm mechanisation vertical, will be given additional responsibility of Mahindra Two Wheelers (MTWL) from April 1, 2014. Both will report to Goenka.
Recent forays into the two-wheelers and heavy commercial vehicles segments, as also a string of joint ventures, have dented the firm?s bottom line but M&M believes some restructuring can help it save on taxes. Moreover, by integrating the back ends of the subsidiaries, the firm also hopes to cut costs and turn around the businesses more quickly.
?The two-wheeler business, which was earlier independent, will now be brought under the AFS (automotive & farm sector) umbrella. Rajan Wadhera, who has a background in commercial vehicles, will manage MTBL and Nalin Mehta (MTBL MD & CEO) will report to him. Two-wheelers will be looked after by Rajesh Jejurikar,? Goenka told FE.
The next stage of restructuring involves merging loss-making businesses into M&M. In February this year M&M bought out US-based Navistar International?s 49% stake in two eight-year-old joint ventures for CVs. M&M has announced plans to invest up to Rs 500 crore in the CV business and hopes to sell 50,000 units a year in the next three to four years. With truck demand on the decline due to slowing macroeconomic growth, MTBL?s FY13 volumes were down 14% at 11,902 units while April-October sales fell a further 31% to 4,848 units. M&M will now integrate MTBL into itself by the end of the fiscal, a move that is expected to lead to tax savings and lower costs across functions like logistics, HR/IT and raw material sourcing.
Navistar?s stake in Mahindra Navistar Automotives (now MTBL) and Mahindra Navistar Engines (renamed Mahindra Heavy Engines) were together worth about Rs 402 crore, according to the Registrar of Companies (RoC). Industry insiders say M&M likely got the stake at a discount given Navistar was looking for an early exit owing to financial troubles in its home US market. The two partners had invested about Rs 800 crore into the company, with M&M pumping in a further Rs 347 crore in FY13.
?M&M has had bad luck with joint ventures. First the Ford JV ended after poor performance of the Ford Escort, then the company bought out Renault?s stake in their JV in 2010. The Navistar JV is the third, though this time it?s largely because Navistar is not in a position to invest in India. The good thing is that M&M gets the truck platform and engines,? said a business strategy consultant who asked not to be named.
Industry sources further indicated that M&M may also merge the two-wheeler business into itself as well after buying out the remaining shareholding of Kinetic Motor. RoC records show that as of March 2013, M&M had increased its stake in MTWL to 93.03% from 88.53% a year earlier ? the rest is with Kinetic. MTWL?s FY13 volumes were down 21.5% at 1.05 lakh units, but in April-October the company made a strong comeback with a 41% jump in sales to 98,312 units.
?For MTBL only the financial reporting is changing and we hope the process of integration will be complete by end of this fiscal. The demerger of the two-wheeler business into M&M is speculation and I would not like to discuss that,? Goenka said.
As of FY13, MTBL and MTWL had accumulated losses of Rs 920 crore and Rs 791 crore, respectively. In comparison, M&M on a standalone basis posted a profit of Rs 3,353 crore (up 16.5%) in FY13 and profit for the second quarter of the current fiscal stood at Rs 990 crore (up 10%).
An analyst with a brokerage said, ?Post the restructuring, M&M?s numbers will optically look smaller since the losses of the subsidiary will be on the books. There will be tax savings from that ? the losses of the CV business can be offset against M&M?s profits so that the taxable income reduces.?
Puneet Gupta, principal analyst at IHS Automotive, said that after the demerger, MTBL will have better bargaining power both with suppliers as well as lending institutions because of M&M?s larger top line. This will significantly aid the turnaround of operations. ?There are synergies in spare parts, logistics, IT/HR which are running separately today, ? he said.
