Mahindra & Mahindra (M&M) would not hesitate to exit its loss-making businesses if customers do not accept these products, the company’s chairman and managing director, Anand Mahindra has told analysts at Nomura in a conference call.
Based on Mahindra’s observations, the Japanese broking firm said today that it believed that M&M “would not continue to invest” in businesses such as Mahindra Navistar and the two wheelers beyond a “reasonable time frame”.
“We believe that one of the key concerns for investors has been the losses in some of these new ventures,” Nomura said.
When contacted on the Nomura report, an M&M spokesperson said: “The comment was made in response to a general query on how decisions to exit businesses are made in the group. Mr Mahindra emphasized that in both these specific businesses Mahindra has incorporated learnings from the market and today has products with strong value propositions and technology. We remain optimistic about gaining traction in the market.”
Based on Mahindra's assurances, Nomura said it "maintained M&M as its top pick in the Indian auto sector".
Analysts said both Navistar and two-wheeler businesses of the company were struggling to make a mark in the industry. The company sold only 11,139 scooters in October this year as compared to 17,949 units sold in October of last year. Its rivals like Hero MotoCorp sold 529,215 units in the same month. Honda sold 250,606 units in October when the festival peak sales season begins.
In the LCV segment, M&M sold 13,411 units in October, while Tata Motors sold 24,655 units during the month, as per data from Society of Indian Automobile Manufacturers.
While the company said it was taking steps to boost two-wheeler sales, the business is yet to showing any signs of a growth. This is in spite of Mahindra launching new products and investing in new research facilities in Pune. V. S. Parthasarathy, Group Chief Information Officer and Executive Vice President recently told analysts that the company launched the Rodeo RZ and Duro DZ, both have received very good response from the market. “Based on the Customer Satisfaction Index, I think we have got the best rating as far as the two wheeler is concerned and as we have pointed out earlier the 110 CC motorbike which will be launched Q4 of F'13 and with that we will be able to see that it will come both in the scooter and motorcycle segment,” he said.
On its M&A strategy, the Nomura report said M&M indicated it was willing to acquire to attain leadership positions in businesses though the company would not take unnecessary risks.
“The fact that management still cited walking away from Jaguar and Land Rover (unlisted) acquisition as a success is quite positive in our view. The company believed that it did not have the wherewithal to handle a downturn like the Tata Group [unlisted] had and thus did not take undue risk. We expect M&M to adopt a similar conservative approach in future acquisitions,” the report said.
It was reported last week that M&M is in the race to buy British luxury sports brand Aston Martin.