M&M Redirects Rs 3,300-Crore Capex To Expand Capacity, Plans IPOs For Unlisted Arms

Mahindra and Mahindra Ltd. has increased its capital expenditure by Rs 3,300 crore for auto and farm equipment units to tackle capacity constraints, according to Group Chief Financial Officer Manoj Bhat.

The capex on expanding capacity will be enabled to meet the 2024 target, Rajesh Jejurikar, executive director and head-auto and farm segment at Mahindra and Mahindra, told BQ Prime during an interaction with the media. He didn't elaborate on the details.

M&M had set itself a capex target of Rs 17,000 crore between fiscals 2022 and 2024. While it has retained the target, it increased the capex for auto capacity from Rs 9,000 crore to Rs 11,900 crore, and for the farm equipment segment from Rs 3,000 crore to Rs 3,400 crore.

It reduced investment to its group companies after they reported an operating profit in fiscal 2022. The companies will generate cash flow for their growth, said Anish Shah, managing director, Mahindra & Mahindra.

The company will look at monetising its listed and unlisted companies by raising Rs 2,000 crore over the next two years, he said. The unlisted firms will be on their path to an IPO, Shah said in response to a BQ Prime query.

"We had set ourselves a number of Rs 2,500 crore between FY22 and FY24. There will be more in FY25 and FY26. We have already got Rs 500 crore from this number," Shah said. "This number is probably on the low-end, and as we see clearer action in this space, we will increase the number as we go along."

M&M's stock has seen a derating over the last two years—it trades at 29.5 times its FY21 earnings and 17 times its estimated earnings for FY23.

"As far as the price-to-earnings ratio is concerned, I will leave that to the market," said Shah. "Our focus is to ensure that our performance is very strong. The second thing that we will show is our ability to drive success in all the businesses we are already in. Today, we are accelerating core growth across core businesses. We have to deliver performance like last year and this year (FY21 and FY22) despite challenges, and let the market catch up on this performance."

Road Map

The Mahindra XUV 7OO has a lengthy delivery period of 18-24 months, depending on the model that the customer has booked. "We misjudged the product mix. A bulk of demand came up at the higher end of the model, which had over 200 chips. We are working to address the issue. So far, we have seen only 10-12% cancellations," said Jejurikar.

M&M will be launching the Scorpio N in the SUV segment at the end of June. It has already begun pre-production and will have a better product mix to avoid long delivery periods, Jejurikar said.

In addition, the company will be unveiling its "born EV" portfolio in August along with the electric vehicle strategy, said Shah, without revealing any details. "We will have a global play in EV."

He emphasised that it's "safe to say, we are not going to buy another SsangYong", referring to the Korean SUV maker in which M&M acquired controlling stake, but later sold due to losses.

Also Read: Davos WEF 2022 | Mahindra Aims Leadership In Electric SUVs With New Launches, Says Anish Shah

The company does not have any immediate plans for electric two-wheelers, Shah said. It has partnered with Hero Electric for production of two-wheelers at its facility for the domestic market, and with Peugeot for the international market.

The company, which entered into a partnership with Volkswagen AG for collaboration with its born-electric platform, will soon enter into a supply agreement with the company.