Mahindra and Mahindra will withdraw from unprofitable subsidiaries and international organisations over the next 12 months and maintain strict capital allocation standards as they seek to focus more on their core automotive and agricultural machinery business, management announced after reporting a pre-tax loss of Rs. 1761 for the quarter of March.
This change is due to a sharp increase in the impairment losses of the consolidated unit, with SsangYong Motor (SYMC), its Korean subsidiary, and Genzee, its two-wheeler company in the United States, adjusting their losses upwards. For the company headed by Anand Mahindra, which has expanded into the automotive and agricultural machinery industry over the past ten years through numerous acquisitions in India and abroad, this represents a change of approach.
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In a web conference with investors held after the completion of the company, Anand Mahindra, president of the Tractor Technology conglomerate, said that the company is reforming its globalization strategy to focus on a rapid return on investment. We will be much more calibrated in our globalization. I want to make it clear that we’re not a company that suddenly looks like a turtle and goes in there… That’s the kind of kneecap reaction the world would see. We will calibrate our growth opportunities around the world and focus on making profits as quickly as possible and get out of it much faster if we are on the wrong track. We will also apply a much stricter control principle.
When defending the capital allocation plan, Mahindra stated that it had never been hungry in its core business (cars and agricultural machinery) and had never withdrawn its capital needs from its core business. Analysts are confused by the sheer size of the conglomerate and the problems it poses in terms of capital allocation and execution. The Group consists of 179 subsidiaries, 30 joint ventures and 28 associated companies.
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According to them, the cancellation of CMCS really reassures the group of investors, but they do not know to what extent the group can still consolidate and recalibrate under the current circumstances. The value adjustment of the SYMC is a bold move and shows that the group is ready to sell it. But there’s only so much he can do, said Mahantesh Sabarad, head of store research at SBICAPS.
said Mitul Shah, vice president of research at Relian’s Securities: M&M’s valuation was undermined by lower returns and a policy of capital allocation. A capital allocation strategy with clear and quantifiable targets for return on equity gives confidence to investors and will lead to ongoing reassessment.
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M&M’s strategy to reorganise and revise its subsidiaries is set against the backdrop of the Kovida 19 pandemic and slow economic growth in India and other markets. Mahindra assured the investors that the chosen path was not a short term path and that the company intended to stay on that path after the turnaround.
As part of a recalibrated globalization plan, M&M announced the liquidation of its two-wheeler business in the United States. The company negotiates with investors on behalf of SYMC and is prepared to relinquish control if it has a buyer, Pavan Goenka, M&M’s managing director.