When
Anand Mahindra set out on a career with the Mahindra & Mahindra
(M&M) Group in 1981, with Mahindra Ugine Steel Co. (MUSCO),
it wasn't the best of times for the Harvard-returned scion to
plunge into the family business. Demand for steel had ebbed and
the industry was in the throes of a recession. For Mahindra, who
joined as Executive Assistant to the Finance Director, the MUSCO
stint was the proverbial baptism by fire. By the time he rose
to President & Deputy Managing Director of MUSCO in 1989,
Mahindra had survived another cyclical downturn. He joined the
flagship tractor and automaker M&M in 1991 and guess what:
The auto industry was struggling with poor demand conditions.
"I have been through three recessions. Almost every time
I started somewhere, there would be a downturn. I would ask myself:
'Why me?' But from the managerial perspective, it gave me a chance
to prove myself. At M&M today, it's a cultural thing-when
the going gets tough, M&M gets going."
At 51, the Vice Chairman & Managing Director
of the Rs 12,000-crore conglomerate can look back on his stint
at MUSCO with pride (and some relief). After all, it was at the
specialty steels firm that he plotted the group's entry into areas
like real estate development and hospitality management. Today,
those are just two of his non-core businesses that are threatening
to put M&M's flagship businesses of tractors and automotives
in the shade. In fact, leave aside those two, and you'd realise
that Mahindra's companies in infrastructure (like Mahindra Holidays
and Mahindra Gesco), information technology (Tech Mahindra and
Bristlecone), financial services (Mahindra Finance and Mahindra
Insurance), systems & technologies (MUSCO and Mahindra Engineering
Services) and trade (Mahindra Intertrade) pitched in with 43 per
cent of the group's profits in 2005-06 (see Not Just Tractors
And The Scorpio). "I sometimes pinch myself and wonder if
this is for real. I can't think of any business or sector (in
the group) that is not doing well. Our companies have reached
a point where they are able to leverage the economy," says
Mahindra.
That's perhaps why in four years Mahindra
has been able to more than double his group sales, treble profits
and-most importantly-create dollops of shareholder value by registering
an almost seven-fold jump in market capitalisation of his seven
listed companies (as per data from the Centre for Monitoring Indian
Economy). It also propels him firmly amongst the top Indian business
families, behind the Tatas, the two Ambanis, the Aditya Birla
Group, the Sterlite Group and Bajaj (see Rising Star). And, going
by the number of companies that have reached critical mass (or
are in the process of doing so), there is plenty more value waiting
to be unlocked at this diversified conglomerate. Tech Mahindra,
the it play that focusses sharply on telecom service providers
and equipment manufacturers, has lined up an initial public offering
(IPO), which should be able to add a billion dollars to the group's
market cap, say analysts. Says Ulhas Yargop, President (Telecom
& Software), which also includes sap & supply chain consulting
company Bristlecone (and which analysts speculate could be a part
of the Tech Mahindra IPO): "An IPO will enhance the brand
image of Tech Mahindra, which will be useful in new customer relationships.
Our employees who have stock options will be able to see the value
that their efforts have created. It will also create a currency
for inorganic transactions."
Following The IPO Route
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Marquee clients: Infosys' campus in
Mahindra World City |
The proposed IPO for Tech Mahindra follows
in the footsteps of Mahindra Finance, which got listed early in
the year, and now boasts a market cap of Rs 1,600 crore. Another
company that will go for IPO in the not too distant future is
Mahindra Holidays & Resorts (MHRL). In systems and technology
(Systech, as its known within M&M), the demerger of an acquired
forgings unit of Amforge Industries into Mahindra Automotive Steels
will give the group another listed entity with a market cap of
around $175 million (Rs 805 crore). And then there's the red-hot
play in real estate/special economic zones or SEZs, Mahindra Gesco
(market cap last fortnight: Rs 1,800 crore), which completes the
picture for Dalal Street investors. Huzaifa Suratwala, auto and
auto ancillary analyst at Emkay Share & Stock Brokers, says
that on a target price of Rs 850, he would fix a value of Rs 300
on M&M's subsidiary businesses. "The profit contribution
will sustain in the current year, although once the Logan (the
mid-sized sedan in a JV with Renault) is launched, things could
change, but only in the medium to long term," he adds.
True, Mahindra has two big-bang JVs ready
to roll out cars and trucks and buses, with Renault of France
and International Truck and Engine Corp. of the us, respectively.
And in tractors, he continues to look for overseas acquisitions
in a bid to challenge global #1, John Deere. Yet, some of his
subsidiary businesses-"thoroughbred racehorses" he calls
them-have king-size ambitions and opportunities of their own.
The Systech sector, for instance, is chasing a sales and market
cap of $1 billion (Rs 4,600 crore) by 2010. International Truck
has committed to buying $100 million (Rs 460 crore) of auto parts
from India, and this figure will go up to $300 million (Rs 1,380
crore). And the fastest growth in profits is being registered
unsurprisingly by Tech Mahindra-in 2005-06 that growth rate was
31 per cent on the topline and 130 per cent in profits over the
previous year. "I have often told Pawan Goenka (Head, Automotives):
Unless you're careful, you're not going to be the largest profit
generator any more. Forget outside, there's great competition
between the two of them to see whose bottom line is larger,"
quips Mahindra.
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Margin of safety: ED
(Finance & Corporate Affairs) Doshi is making sure M&M has
headroom in case of a downturn |
The race for market cap and profitability
is backed by solid blueprints in each sector, with acquisitions,
expansions into new geographies, and entries into new businesses
making up key pieces of that growth game plan. For instance, Hemant
Luthra, Head of the Systech sector, points out that market cap
has more than doubled from $125 million (Rs 575 crore) to close
to $300 million last year, on the back of acquisitions like Amforge
and Stokes of the UK (in forgings), as well as Plexion (in engineering
services). In three months, he expects to be up to $500-600 million
(Rs 2,300-2,760 crore) with an acquisition in Europe. "With
the inorganic moves that we will make, the next huge value creator
post-Tech Mahindra's IPO could be the systems and technology sector,"
says Mahindra.
Betting Big On Infrastructure
In the infrastructure development sector,
the two companies gunning for growth are MHRL and Mahindra Gesco.
Arun Nanda, Head of this sector, sees two opportunities for MHRL:
One, acquiring resorts (typically of 100 units) in neighbouring
countries, the Middle East, perhaps in China and certainly in
the Alps. And on the timeshare marketing side, he wants to expand
in the Middle East as well as in the us. But what easily excites
Nanda these days are his grand ambitions for building SEZs in
Jaipur and Pune, at a total outlay of Rs 5,000 crore. For him
SEZs are an infrastructure play and not a property one (as it
is perhaps for many with SEZ plans). The M&M Group, for its
part, has experience in putting up SEZs in public-private partnerships,
having done so in Chennai. It wasn't easy, and it's taken all
of eight years to get the integrated township Mahindra World City
(that's what it's called). "It's been tough, but satisfying,"
says Nanda. Mahindra World City today has marquee clients like
Infosys, BMW and Braun, and Nanda foresees a smoother ride with
the other SEZs. In Jaipur, for instance, Nanda can breathe easier
as he's found an anchor client-an imperative in filling up the
SEZ-in Progeon from the Infosys Group.
Mahindra says in these times being asset-light
is a virtue. Yet, the investments he has lined up aren't small
beer by any yardstick. But as Bharat Doshi, Executive Director
(Finance & Corporate Affairs), points out, M&M's financial
strength is not an issue. "We have a surplus of roughly Rs
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