Mahindra & Mahindra is considering setting up second base overseas to globalise footprint

MUMBAI: India's largest tractor maker, Mahindra & Mahindra, is considering setting up a second base overseas, globalizing its footprint to distribute business risks and ride out inevitable market fluctuations in the localized farming industry.

“As part of our globalisation strategy and with the market focus, surely we believe there is a need for us to have a second base outside India.
Currently, our team is trying to figure out which is the destination where we will be going, and soon we will be able to take a call," said Pravin Shah, president and chief executive of the automotive division of Mahindra & Mahindra.

The Mumbai-based company, which sells more tractors in India than any of its local or foreign rivals, is seeking to establish itself as a global tractor maker with a full-line farm machinery business through acquisitions and new manufacturing units, underpinned by the requisite brand and sales infrastructure. The company wants to leverage its global network for product development: It has made nine acquisitions and investments since 2008 and spends about 4.7% revenue on research & development.

"Mahindra’s product development is becoming global with the experienced talent housed in the global organisations," Shah added. "We are also aggressively growing our overseas manufacturing footprint through completely knocked down (CKD) units in Bangladesh, Tunisia and some other markets and very soon we are looking at creating a second home –based market outside India."

Mahindra & Mahindra wants its farm machinery business to pull in a fifth of its total revenue by financial year 2019, half of which should come from global sales, said Rajesh Jejurikar, President & CEO of Farm Equipment and Two Wheelers.

"It is natural and imperative for automotive OEMs to build scale in key international markets both from a perspective of spreading technology investments over a larger base as well as from the perspective of tiding over market fluctuations that are likely to occur in every geography," said Wilfried Aulbur, the Managing Partner of Roland Berger in India and head of Roland Berger's Asia Automotive Practice.

He added that a focused effort of building scale and being relevant in a few chosen geographies typically leads to OEMs having a strong presence or even a 2nd or 3rd base in markets beyond home. The global automotive industry is centered around strong regional clusters such as Nafta, Europe, South Asia, South East Asia, and China.

The automobile major reported a decline of 5.69% in consolidated profits at Rs 801.06 crore, for the quarter ending December, 2016, owing to lower sales in the aftermath of the currency swap. However, combined net sales expanded 1.16% year-on-year at Rs 10,586 crore, compared with Rs 10,464.51 crore in the same quarter last year.

"The global farm equipment market is a $156 billion industry and tractors are about $62 billion. This shows us that there is a very large global opportunity outside tractors, in farm mechanisation or farm machinery space," Jejurikar said, citing internal estimates and a study done by research firm Freedonia.

Mahindra & Mahindra expects the farm machinery business to account for 15% of total revenue end of this financial year compared with just 4% in fiscal 2015. About 63% of this revenue is expected to come from Indian markets while the rest will be raked in by its global subsidiaries.

"As we think about our future, we would like to see ourselves move from being a primarily tractor and domestic company to a company that is global and beyond tractors - into farm machinery," said Jejurikar. "This needs a strategy which is disruptive and different from what we have had in the past. We now have a set of new markets that we have added - Mexico, Brazil, Turkey and Egypt."

Mahindra & Mahindra acquired Hisarlar Makina Sanayi, a farm equipment company in Turkey, for Rs. 129 crore last month to expand its presence in Europe and set up a possible market for selling tractors. It also bought one-third stake in Japan's Mitsubishi AgriMachinery and 35% in Finland-based Sampo Rosenlew in 2016.