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M&M: Cosmetic changes - Views on News from Equitymaster
 
 
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  • Jul 2, 1999

    M&M: Cosmetic changes

    Mahindra & Mahindra (M&M) Group is restructuring its 18 subsidiaries into three business clusters - Mahindra and Mahindra (M&M), Mahindra Holding & Finance Ltd. (MHFL), and Mahindra Information Technology Services Ltd. (MITSL). While M&M will retain the auto-related businesses, the info tech business will be under MISTL. The other businesses comprising realty, consultancy will be under MHFL.

    M&M (FY99 Sales Rs 34.5 bn) is a dominant player in the mfg of utility vehicle segment as well as the tractor segment of the automobile industry. It is also engaged in the manufacture of light commercial vehicles and is aiming to become the largest player (in terms of volumes) in the world tractor market. M&M also has a presence in the information technology, consultancy and realty sectors.

    Amongst these subsidiaries, some have a high earnings growth potential like Mahindra - British Telecom, while others do not have such potential. Amongst those that are not performing well are Mahindra Realty and Mahindra Exports.

    The analysts had voiced concerns regarding the lack of transparency in the balance sheet. Moreover, they feared that the cash flows of M&M could be diverted to cash flow deficit divisions, thus ultimately putting pressure on the bottomline of M&M. Therefore, this exercise has been initiated to clean the balance sheet and make it more transparent.

    The mixed performance of the subsidiaries is of concern because when consolidation of accounts becomes mandatory the company could take a hit on its bottomline due to the bad performance of these subsidiaries. Therefore, apart from restructuring the company should take concrete measures to improve the performance of these subsidiaries.

    Market View:
    The stock has been rated as a 'SELL' mainly on account of the company's high capex plans, high inventory levels and sluggish utility vehicle sales growth. However, on the prospects of an agricultural boom, some analysts are expecting the company to be a direct beneficiary and have rated the stock as a 'BUY'.

     

     

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