M&M LOOKS ABROAD TO BUMP UP REVENUE FROM FARM GEAR
Mahindra & Mahindra, market leader in tractor and farm equipment, envisages drawing half its revenue in the farm equipment segment from foreign operations over the next two to three years. This will be a jump from the current 37 per cent. It is planning to increase its share in the domestic tractor market from 43 per cent to 50 per cent. While the overseas strategy will be driven by efforts to increase revenue in the Americas, Japan and Turkey, a volume ramp-up of the recently-launched tractor platforms will be a key to meeting the goal. The farm-equipment sector is the cash-cow for the conglomerate. It contributes four of every ~10 earned in revenue terms and six out of ~10 in profit terms to the parent company. In FY18, M&M's farm equipment business had a turnover ratio of 5.4. SHALLY SETH MOHILE writes
Mahindra and Mahindra, (M&M) a market leader in tractor and farm equipment, has set a goal for its domestic and overseas businesses. The company envisages drawing half of its revenue in the segment from overseas operations over the next two to three years. This will be a jump from the current 37 per cent, even as it aspires to increase its share in the domestic tractor market form the 43 per cent to 50 per cent, top official said.
While the overseas strategy will be driven by efforts to increase revenue in the Americas, Japan and Turkey, a volume ramp-up of the recently-launched tractor platforms will be a key to meeting the goal.
To be sure, the farm-equipment sector is the cash-cow for the conglomerate. It contributes ~4 of every ~10 earned in revenue terms and ~6 out of ~10 in profit terms to the parent company. In the fiscal year 2018, M&M’s farm equipment business had an asset turnover ratio of 5.4-the best in six years, and a profit before interest and tax margin of 19.9 per cent, also highest in six years.
M&M's globalisation strategy aimed at de-risking the India business from the cyclical swings in the domestic market is being driven by three key regions-Turkey, Japan and the Americas (includes North America, Brazil and Mexico), Rajesh Jejurikar, president, farm equipment sector said in an interview to Business Standard. With an exception of the Americas, Mahindra has entered most of these markets through acquisitions over the last five years.
The three regions will serve as the centres of excellence (CoE) for development of different products. While Sampo Rosenlew in Finland will serve as the CoE for harvesters, Mitsubishi Mahindra Agri Machinery in Japan will be a CoE for machinery related to the rice value chain and Hisarlar in Turkey will be the CoE for farm implement.
"The whole strategy is around integrating target markets with products from CoEs," said Jejurikar, adding that both from application and usage point of view, Indian products are doing well in these regions and the company has a strong portfolio to meet the requirements.
M&M aspires to increase revenue from the three regions from the current $450 million to $1 billion dollar in Japan; from $600 million to $1 billion dollar in the Americas and from the current $240 million to $500 million in Turkey, the company said in an investor meet on 26 June.
The company's earnings before interest and tax (Ebit) from the global business is at - 1.5 per cent. It plans to scale it up to 5 per cent in the medium term. Analysts are bullish of M&M's farm equipment business. "Company's strategy for its global business ramp up further boosts our confidence as it is focusing on products and segments which are similar to the domestic tractor portfolio," said Saksham Kaushal and Poorvi Banka, analysts at Prabhudas Lilladher.