Mahindra and Mahindra sets aggressive goals for farm equipment business

Mahindra and Mahindra, (M&M) a market leader in tractor and farm equipment, has set itself an aggressive goal for both domestic and overseas business as it charts the next phase of growth. As part of the plan, the company envisages drawing half of its revenue in the segment from overseas operations over the next two to three years, up from the current 37 per cent, even as it aspires to increase its share in the domestic tractor market form the current 43 per cent to 50 per cent, company's top official said. While the overseas strategy will be driven by efforts to increase revenue in the Americas, Japan and Eastern Europe, a volume ramp of the recently launched tractor platforms will be key to meeting the aspiration to control half the domestic market.

To be sure, the farm equipment sector is the cash-cow for the tractor-technology conglomerate. It contributes four out of every ten rupees earned in revenue terms and six out of ten rupees in profit terms for the parent company. In fiscal that ended in 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 of 19.9 per cent, also the 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 the three key regions—Eastern Europe, Japan and the Americas (includes North America, Brazil and Mexico), Rajesh Jejurikar, president, farm equipment sector said in an interview to Business Standard. Mahindra has entered most of these markets through acquisitions over the last five years.

These three regions will serve as centre of excellence (CoE) for development of different products. While Sampo Rosenlew in Poland 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 picking up markets and creating centre of excellence,” said Jejurikar adding that both from application and usage point of view, Indian products are doing really well in these regions and the company has a strong portfolio to meet the requirements.

Based on the strength of a strong portfolio and reach, M&M aspires to increase revenue in all the three regions --- from the current $450 million to a billion dollar in Japan, from $600 million to a billion dollar in the Americas and from the current $240 million to half a billion in Turkey, the company said in an investor meet on 26 June. Company’s earnings before interest and tax (Ebit) from the global business is currently -1.5 per cent. It plans to take 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 focussing on products and segments which are similar to domestic tractor portfolio,” wrote Saksham Kaushal and Poorvi Banka, analysts from Prabhudas Lilladher in a June 27 report.

Meanwhile, M&M also plans to significantly increase its play in the domestic market where it is already ahead of its rivals Tafe, Escorts, Sonalika Tractors by a wide margin. The company aspires to increase to control half the market from the current 43 per cent. “This is an aspiration which is based on the several steps we have taken in the last few years,” said Jejurikar. This will be driven by the three brands each with a differentiated positioning. While Mahindra for technology, Swaraj for reliability and Trakstar for affordable mechanisation.

Besides a favourable monsoon, company’s confidence of cornering a higher share, stems from a relatively low tractor penetration in India, an increasing trend of investment on irrigation which in turn has a direct correlation to tractor sales growth. An increasing rural income and better purchasing power and policy factors also bodes well for tractor sales.