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Substantial assets in Mahindra & Mahindra


Indian Mahindra & Mahindra has acquired South Korea’s third-largest car factory at a very favourable price. The challenges are daunting, but the Indians are more than prepared to tackle them.

The emerging markets are currently teeming with companies that create new value for shareholders. Many of them have so much clout that they will also contribute to business reforms in the more developed countries.

This is worth noting at a time when the stock markets and business media are keenly focused on the government debt problems in both the southern European members of the euro zone and the US.

The Indian conglomerate Mahindra & Mahindra (M&M) is the world’s largest tractor producer. They manufacture agricultural machines that are customised to Indian requirements, in addition to the large-scale production of four-wheel drive vehicles, passenger vehicles and vans. They are also involved in a number of other important activities in India.

Since its establishment in 1945 M&M has grown in step with independent India, protected by import restrictions that enabled the establishment of an Indian automotive industry. Today, however, the Indians operate on fully competitive terms.

When Indian companies such as Mahindra & Mahindra and Tata Motors acquire industrial companies in the West they do so in a positive way, with due respect for management and employees. Tata’s acquisition of Jaguar and Land Rover in 2008 has developed soundly, while M&M has made minor acquisitions and established its own activities all over the globe.

This growth has also benefited shareholders. M&M has continued to develop as a profitable company, with both top and bottom-line expansion, and the growth rates have been really impressive. In the last decade, the annual growth in the number of manufactured vehicles has averaged 13 percent. In the same decade, car sales revenue has risen by an average of 23 percent per annum. These are very convincing numbers.

South Korean acquisition

In contrast, over the past seven years the third-largest South Korean car group, Ssangyong Motor, has been affected by debilitating labour conflicts, to the detriment of all parties involved. This has actually been ongoing since the company was acquired by Chinese Shanghai Automotive Industry Corporation in 2004. As we were minority shareholders for a period, we experienced this at close quarters.

Now, however, help is on its way for Ssangyong Motor. M&M took over control of the company at the end of 2010. The Bloomberg news agency has written an extensive feature article on the Indians’ acquisition and ensuing struggle to reform Ssangyong Motor.

Company with a mission

For many years Mahindra & Mahindra has been making a sustained effort to formulate and project its soft values. There is no doubt of the genuine commitment within the company. Moreover, M&M has shown a special ability to stay clear of the corruption scandals that so often affect the Indian business world.

M&M’s vision is to grow in the future, together with both India and the West. By thinking laterally, accepting no limits, and driving positive change. By creating solutions that make a significant difference in the lives of customers.

The company’s soft values are also linked to its growth strategy, and are confirmed by the company’s history. Mahindra’s sound reputation, documented industrial clout and strong financial standing have repeatedly enabled it to acquire failing companies at low cost, and then turn them around. The latest example is Satyam Computer, which was affected by an extensive accounting scandal.

SKAGEN’s investment

SKAGEN Kon-Tiki’s ongoing investment in M&M is based on our expectation of sustained profitable growth in the company.

M&M is moderately priced, and the management has demonstrated the ability to create value for its shareholders. Post-tax profits have risen by an average of 32 percent over the last five years, and sales have increased by 21 percent.

The majority of M&M’s sales revenue still comes from its growing markets in India. The expanding middle class are buying more cars. M&M is the absolute leader for Utility Vehicles, with a market share of 61 percent. This category includes vans and lorries.

Since 2008 M&M has expanded its product range and gained market shares. Minor acquisitions may lead to expansion of its business areas, including three-wheeled vehicles (very popular in India). Mahindra’s tractors and agricultural machines are in high demand as they increase productivity on Indian farms.

Conglomerates such as M&M are often priced lower in the equity markets because investors prefer to invest in companies with a narrower profile in just one sector.

SKAGEN’s experience is that investors are well-protected if they can invest on the same terms and in the same position as the controlling owners of a conglomerate. In this case the Mahindra family, who own 27.2 percent of the company. Owner families manage their assets prudently, to the benefit of all shareholders.