Riding on alliance, M&M & CIE improve finances

Five years since Mahindra and Mahindra and CIE Automotive stitched a deal to create a large auto component firm with a global footprint, the strategy has paid off for both companies in terms of performance as well as market capitalisation.

Having successfully integrated their businesses across geographies, Mahindra CIE is now scouting for auto component firms in India, to plug gaps in its product and customer portfolio, according to Hemant Luthra, non-executive chairman, Mahindra CIE.

While share prices of Mahindra CIE have gone up 489 per cent, CIE Automotive has gained 515 per cent since June 2013. “We are enjoying the best of both worlds,” said Luthra.

When Mahindra invested in CIE, the share price of the Spanish company was 6 euros, it has since climbed up to 32 euros. Mahindra has seen its profit from this transaction soar and CIE's market value has gone up substantially, too, according to Luthra.

“Some of the gambles we took have been paying off," said Luthra, adding, the turnaround involved some tough decisions, including closures and lay-offs, to arrive at a uniform cost structure across Mahindra and CIE's plants. With most of the restructuring done, Mahindra CIE is now bracing up for acquisitions in growth markets, including India. With most auto companies working towards light-weights to meet stricter fuel emissions and fuel efficiency norms, Mahindra CIE is looking to buy out a company that specialises in aluminium parts and composites. Also on the radar is a firm that can supply to electric vehicles.

"We have a philosophy of inviting likeminded partners with similar values and business synergies to participate in our growth. Unlike auctions, which we do not do, this process takes time and it is difficult to impose deadlines on the wooing process and predict when the bride will say yes," said Luthra.

In a significant departure from its previous mergers and acquisitions (M&A) strategy, in June 2013, Mahindra forged a global alliance with Spanish auto components maker CIE. The multi-layered deal involved a share swap as part of which M&M ceded control of its domestic components business to the Spanish company. Giving up control of a unit to another entity was rare for M&M, which had made 35 acquisitions in the past decade.

As part of the transaction, Mahindra merged all its auto components businesses, grouped under Mahindra Systech, into its listed entity, Mahindra Forgings. The new company was renamed Mahindra CIE Automotive. CIE holds 51 per cent and Mahindra around 20 per cent in the company. The rest is owned by institutional and public shareholders.

In the first quarter ended March 2018, Mahindra CIE's consolidated revenue rose to ~19.12 billion, from ~15.2 billion a year ago, while its earnings before tax rose 62% to ~1.9 billion, against ~1.17 billion a year ago. Mahindra CIE follows a January to December financial year.