Mahindra & Mahindra eyes overseas markets for growth.

Mahindra & Mahindra eyes overseas markets for growth.

29 April, 2017

Mahindra & Mahindra says its farm equipment division head Rajesh Jejurikar is on a mission. And the mission resonates with that of the government. 

"We will look at doubling the income of farmers," says the 52-year old. The nation's largest SUV and tractor maker wants to bring the latest farming technologies to India, and see how to customise those for the benefit of the Indian farmer, including the one whose landholding is marginal. 
While the company is bullish on India, for growth, it is looking global, where the market for tractors and other farm equipment is worth more than $150 billion a year. At home, the tractor market is just $6 billion, while that for other agriculture equipment is even smaller. 

In 2011-12, Jejurikar, then the chief executive of automotive division, left Mahindra after the blockbuster launch of the XUV 500, to join media firm Zee EntertainmentBSE -0.51 % as its president and try out something different. He returned barely 10 months later, to lead the farm equipment division, where again his mandate was to do things differently. 

Mahindra was already the global No. 1 in terms of tractor sales, yet the company was addressing just the home and a few overseas markets. As much as 95% of the division's revenue came from tractor sales in India. That was a risk. 

India is too dependent on monsoon rains with about two-thirds of its farmland having noirrigation facilities. Farming, and so sales of farm equipment, takes a hit when not enough rains fall. Droughts have become more frequent in recent years than in the past. 

Mahindra had to look at ways of derisking the operation. Going global and expanding further into farm mechanisation from just tractors were among the options. In a recent interaction with ET, Jejurikar called it "expanding of the pond". 

GLOBAL BRAND 
Over the next few months after he returned to Mahindra, Jejurikar covered the length and breadth of the country and also travelled to several foreign markets. 

He and the strategy team put together a plan to target a piece of the $150 billion global opportunity, more than $90 billion of that in the non-tractor farm equipment space. It predicts the non-tractor market will grow to $179.3 billion by 2023. 

They wanted to build Mahindra as a global farm equipment brand. Taking a piggyback ride was one of the ways to achieve that. Since 2014, Mahindra picked up significant stakes in three different companies —Mitsubishi Agri Machinery, Sampo Rosenlew and Hisarlas— in Asia and Europe. It has also scanned more than a dozen companies with which it could tie-up to gain technology and expand market coverage. That was a new beginning and the work is still ongoing. 

PROMISE 2019 
The farm equipment business is key to the overall growth of Mahindra, which also makes popular SUVs such as the XUV 500 and Scorpio. This segment has been growing faster than the automotive business, where it is facing headwinds with heightened competition in the SUV  space and new and tougher regulations. In fiscal 2017, volume in the automotive sector declined marginally, while the tractor business grew 23%. 

Tractors have been returning healthydouble digit margins of 14% to 17.5% over the last three years . While the share of farm equipment division in total revenues ranges between 33-35%, its contribution to the operating profit has been 35-50%. 

Under the new game plan, Mahindra has set an ambitious target. It expects the share of non-tractor farm equipment business in total revenue to grow to 20% by fiscal 2019 from a mere 4% at the end of December 2014. By then, it also aims for global operations to account for half the total revenue of the division, from 30% in 2015. 

The company is banking on technology it got access to through recent stake purchases and product understanding to reach the targets. When Mahindra goes for acquisitions in the farm equipment space, it isn't looking for big deals, but smart buys into what it calls islands of excellences, or companies which can offer it technological capabilities. 

On its own, Mahindra would never have gone to Japan. It is the acquisition of a stake in Mitsubishi Agri that gave it a presence in Japan. Out of half a billion dollars turnover that Mitsubishi Agri generates today, almost 40% comes from the farm equipment space and largely from rice planters, which is one of the core areas of focus for Mahindra. Mahindra spent $40 million for a 33% stake in Mitsubishi Agri in May 2015. 

A 35% stake in Finnish harvest equipment firm Sampo Rosenlew and 75.10% of Turkey's Hisarlas came to its kitty for $19-20 million each in 2016-2017. 

These are small deals, but the value they offer is big in terms of getting into new segments, technology and geographical reach. In each of these, Mahindra has a strong board position according to Jejurikar, this is a great way for Mahindra to build the brand globally. 

HUB AND SPOKE MODEL 
Mahindra already has tractor manufacturing businesses in China, Japan and the US, and is entering markets like Brazil and Mexico. The company has carefully chosen these countries, which are large farming markets themselves. It intends to also export from these bases to nearby countries. 
On the non-tractor farm equipment business, the focus will be on the emerging markets of India, China, Africa and Latin America. And here, the immediate target is rice transplanters and combined harvesters. 

Mitsubishi Japan will be the base for rice transplanters and Sampo Rosenlew for combined harvesters. These two adjacent segments have a global market for $30-50 billion. 
 

REAPING THE GAINS 
Apart from expanding in the global non-tractor market, Mahindra wants to play a proactive role in driving mechanisation in the Rs 5,000 crore Indian market for non-tractor farm equipment. 

Already some benefits of global acquisitions have started showing result in the domestic market. In India, Mahindra introduced tractors for the horticulture segment and rice transplanters from the Mitsubishi portfolio. 
 

It is also in the process of making distributors more digital savvy, as part of an initiative called Farming 3.0. It is also going beyond selling tractors to providing solutions to farmers, including farming implements and advisory at the dealership. 

NEW KUBOTA 
Mahindra aspires to be a new Kubota Tractor Corp in the global farm equipment market, say people in the know of the company's plans. 
 

The rise of Japan's Kubota is much similar to the rise of Hyundai Motor, which successfully challenged global auto majors with its value for money cars. 

"We (Kubota) think they really created a fantastic role model on how you can go and create a global enterprise," said one of the people. "They challenged the status quo in the world and created their own presence." 

 

Sourec:- http://economictimes.indiatimes.com/articleshow/58425134.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

 

 

 

 

 

 

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