Though several critics hold to account the high expectations from the company as one of the major reasons for the loss in shareholder value, one could understand that those were these very bullish expectations that empowered the stock to outperform the BSE Auto Index over the past year – since January 2009, Mahindra’s share price has risen by 279%, much higher than the 187% rise in the BSE Auto Index. And keeping in mind the growth fuelled by the strategic diversifications over the past years (see timeline), the group – and Anand Mahindra especially – has gathered some scrupulous and strong supporters too in their wake (S. P. Shah, President, Federation of Automobile Dealers Association is one of them, refusing to buy a contrarian argument; he tells B&E, “Anand Mahindra is one of the finest strategists in the country. In fact, his clear understanding of the market and his focus on the bottom of the pyramid has made the Mahindra Group one of the strongest business conglomerates.”)
Giving credit where it’s due, when we compare the Mahindra Group with other diversified firms in the country today, it becomes all the more clearer that Anand Mahindra has fared much better at risk-taking. Be it Mukesh Ambani’s retail venture, Ratan Tata’s expensive JLR deal, Sunil Mittal’s cautious process of making inroads into sectors like retail & realty, K.M. Birla’s unsuccessful retail venture and his ill-fated acquisition of Spice Mobile or many such enthusiasts; all of the aforementioned business honchos have run into the rapids quite unexpectedly, while trying to make their mark in newer territories, organically or inorganically. Take the classic case of the JLR acquisition by Tata Motors for that matter. Tata bought Jaguar & Land Rover (the two most popular brands from Ford’s stable) for a whopping $2.3 billion in March 2008. To imagine that just nine months later, the market value of GM lay battered at under $1 billion on the NYSE is proof enough of the ill-timing of the purchase; Tata could have instead purchased a decent stake in GM itself! he’s leaving little to chance..
Here is another instance. As soon as K. M. Birla’s June 2008 acquisition of Spice Telecom was announced, several industry watchers expressed their discomfort with the deal. And their reactions were understandable, for Birla’s Idea Cellular had paid a huge Rs.27 billion for a 40.8% stake in a company that was operational in only two circles of Karnataka & Punjab, was experiencing a drop in subscriber base and had a much lower Average Revenue Per User (ARPUs) as compared to that of Idea. But the company went ahead with its decision and may still end up with a wise buy, albeit cutthroat competition, given India’s future telecom potential.
On the other end, we have Anand Mahindra, who has made clear in-roads into sectors like Travel & Tourism and IT, with his two cubs – Club Mahindra and Tech Mahindra. “We want that people should relate to holidays as Club Mahindra and thus, our focus is to grow in India,” points out Ramesh Ramanathan, MD, Mahindra Holidays & Resorts, to B&E. But all’s not well on this end too, and just like other diversified firms, Anand Mahindra seems to have his own share of troubles.
But there are cautious warning signs in some of Anand Mahindra’s SBUs. As far as his Tech Mahindra dream goes, experts still believe that he should become extra cautious about any further investment in this vehicle. According to a report by Prabhudas Liladhar, a leading brokerage house in the country: British Telecom’s trouble (BT Group owns 31% in Tech Mahindra and is also the largest customer, accounting for 46% of its revenue) and subdued IT spending in the telecom vertical could reduce earnings visibility in the near term, therefore giving Tech Mahindra’s stock a ‘reduce’ rating tag. The report further forecasts the company’s net profits during FY2010 to fall by 36.1% y-o-y, to touch Rs.6.9 billion. Even during Q3, 2010, the firm experienced a 22% drop in net profits due to interest costs on borrowings that it used to fund its acquisition of Satyam. After shelling out a precious $4.50 billion, the company still has a considerable amount of unpaid debt, which at the moment stands at Rs.17.44 billion as on January 1, 2010.
Giving credit where it’s due, when we compare the Mahindra Group with other diversified firms in the country today, it becomes all the more clearer that Anand Mahindra has fared much better at risk-taking. Be it Mukesh Ambani’s retail venture, Ratan Tata’s expensive JLR deal, Sunil Mittal’s cautious process of making inroads into sectors like retail & realty, K.M. Birla’s unsuccessful retail venture and his ill-fated acquisition of Spice Mobile or many such enthusiasts; all of the aforementioned business honchos have run into the rapids quite unexpectedly, while trying to make their mark in newer territories, organically or inorganically. Take the classic case of the JLR acquisition by Tata Motors for that matter. Tata bought Jaguar & Land Rover (the two most popular brands from Ford’s stable) for a whopping $2.3 billion in March 2008. To imagine that just nine months later, the market value of GM lay battered at under $1 billion on the NYSE is proof enough of the ill-timing of the purchase; Tata could have instead purchased a decent stake in GM itself! he’s leaving little to chance..
Here is another instance. As soon as K. M. Birla’s June 2008 acquisition of Spice Telecom was announced, several industry watchers expressed their discomfort with the deal. And their reactions were understandable, for Birla’s Idea Cellular had paid a huge Rs.27 billion for a 40.8% stake in a company that was operational in only two circles of Karnataka & Punjab, was experiencing a drop in subscriber base and had a much lower Average Revenue Per User (ARPUs) as compared to that of Idea. But the company went ahead with its decision and may still end up with a wise buy, albeit cutthroat competition, given India’s future telecom potential.
On the other end, we have Anand Mahindra, who has made clear in-roads into sectors like Travel & Tourism and IT, with his two cubs – Club Mahindra and Tech Mahindra. “We want that people should relate to holidays as Club Mahindra and thus, our focus is to grow in India,” points out Ramesh Ramanathan, MD, Mahindra Holidays & Resorts, to B&E. But all’s not well on this end too, and just like other diversified firms, Anand Mahindra seems to have his own share of troubles.
But there are cautious warning signs in some of Anand Mahindra’s SBUs. As far as his Tech Mahindra dream goes, experts still believe that he should become extra cautious about any further investment in this vehicle. According to a report by Prabhudas Liladhar, a leading brokerage house in the country: British Telecom’s trouble (BT Group owns 31% in Tech Mahindra and is also the largest customer, accounting for 46% of its revenue) and subdued IT spending in the telecom vertical could reduce earnings visibility in the near term, therefore giving Tech Mahindra’s stock a ‘reduce’ rating tag. The report further forecasts the company’s net profits during FY2010 to fall by 36.1% y-o-y, to touch Rs.6.9 billion. Even during Q3, 2010, the firm experienced a 22% drop in net profits due to interest costs on borrowings that it used to fund its acquisition of Satyam. After shelling out a precious $4.50 billion, the company still has a considerable amount of unpaid debt, which at the moment stands at Rs.17.44 billion as on January 1, 2010.
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