Back to the Farm for Mahindra

By Peter Pham - July 24, 2012 | Tickers: F, GM, TM, VWO | 0 Comments

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Founded in 1945 as a steel trading company, Mahindra has diversified and grown over time into a $15.4 billion multinational group with more than 144,000 employees in over 100 countries across the globe. As of the end of 2011, the group was comprised of 112 subsidiaries, six joint ventures and 13 associates.

With a presence in industries as varied as aerospace and agribusiness to automotive and insurance, Mahindra is the embodiment of the Indian spirit of relentless pragmatism.  If it’s needed then go and build it, however you have to.  Because of this, it is considered to be one of the most reputable Indian industrial houses, with market leadership in utility vehicles as well as tractors in India, which is how they are best known in the U.S.

Recently, Anand Mahindra, vice chairman & managing director of Mahindra Group, and Alan Mulally, president & CEO, Ford (NYSE: F), have been honored with Global Leadership Awards for their outstanding contributions to the US-India growth story.

A potential big loss for the company will be Mr. Keshub Mahindra, who has been Chairman of Mahindra & Mahindra Ltd., the vehicle division which accounts for more than 40% of the group’s revenue, for the last 48 years and may retire. Mr. Keshub Mahindra joined the Board in 1948 and was elected Chairman in 1963. During the 48 years of his Chairmanship, the Mahindra Group grew from a manufacturer of automobiles to a federation of companies operating in a range of businesses, including automobiles, tractors, auto components, I.T., real estate, financial services and hospitality.

Mahindra is the world’s largest tractor company by volume and is currently growing its tractor exports by 70% per year on a unit basis.  This has driven a 21% increase in revenue for the farm equipment division. 

The automotive division leads in the pickup truck and SUV market in India, with more than 50% of the market, and their Bolero SUV is now the 4^th best-selling passenger car in India, topping the 10,000 units sold in a month level that’s reserved for the smallest cars from Maruti Suzuki.  India’s cutomotive market is one of the fastest growing in the world.  Mahindra has profited from the government’s subsidizing of diesel fuel, which has helped their pickup and SUV business.

They will face stiffer competition at home, however, as Izuzu will be importing diesel pickups made in their plant in Thailand beginning this year and is building a plant in India to sell locally.  Izuzu is a dominant player, along with Toyota (NYSE: TM), in markets like Thailand, Malaysia and Indonesia, where the pickup truck is not only needed but revered.  Case in point being GM (NYSE: GM) unveiling the latest Colorado at BIMS in Bangkok last year.

After many years of fighting both U.S. bureaucracy and poor feedback from road testers, Mahindra finally gave up on bringing their T20 and T40 diesel pickup trucks to the U.S.  In what was a more than four year saga of safety and emissions testing and wrangling, M&M finally decided the process was not worth it.  They will, however, have to deal with the legal fallout from this decision, as a Miami-based law firm representing dealers across the U.S. (and that Mahindra had signed distribution deals with) filed a lawsuit in U.S. District Court in Atlanta for fraud.   Also, it is facing some difficulties in pushing the sales for Ssangyong (a Korean automotive brand of which it holds 70%) in China’s expanding car market.

This saga goes to show just how hard it is to introduce a new brand of on-road vehicle into the U.S.  Mahindra has had no problem bringing in farm and heavy equipment, but U.S. auto manufacturing, especially of trucks, has been a heavily protected industry going back to the 1940’s and Preston Tucker. 

Food and energy production are growth markets the world over.  As the trade and tariff wars heat up, the road for Mahindra to continue to leverage its position in heavy machinery is looking very good, especially with the now heavily discounted Rupee.  The iShares S&P India Nifty 50 Index Fund (INDY) is up more than 8% year to date, outperforming the Dow Jones industrials (up 4.95%) as well as other larger emerging market ETF’s like Vanguard MSCI Emerging Markets ETF (NYSEMKT: VWO), which is up just 3.1%.   INDY is a broadly diversified single country ETF with less than 20% allocated to any one industry where 40+% is the norm for financials. 

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