Mahindra and Mahindra Ltd (M&M) has plans to improve return on equity (ROE) and ensure appropriate capital allocation across businesses is on track, Anish Shah, group chief financial officer and deputy managing director, M&M, said on Wednesday. “If you look at 2002 to August 2018, M&M was the best-performing stock on Nifty. The key driver of that was the financial performance. Earnings grew 34 per cent annually. We had an average ROE of 22 per cent and there was a very strong cash generation. So, we are going back to those three metrics to achieve the fiscal discipline we had then,” Shah said in an interview about the company’s strategic plan of achieving 18 per cent ROE across all business units. The M&M management is evaluating loss-making businesses across its core and non-core group companies globally to reduce cash burn and prioritize capital allocation to businesses that offer visibility of at least 18 per cent ROE in the near to mid-term.
“There were some bets that were taken that did not quite work out as planned and this will happen sometimes. However, it is important for us to readjust and go back to that fiscal discipline,” Shah said.
M&M has already shuttered the US-based electric bike startup GenZe and Australia-based small aircraft manufacturer GippsAero Pty Ltd, a wholly owned subsidiary of group company Mahindra Aerospace, as part of its action plan to offload loss-making units.
It has halted capital infusion into its ailing Korean subsidiary SsangYong Motor Company (SYMC) as it continues to actively aim for the sale of its 75% stake. Further investment in its American unit, Mahindra Automotive North America (MANA), has also been halted as the company looks for more clarity on the business model. The company is waiting for clarity from the ongoing legal battle with Fiat Chrysler Automobiles (FCA) on the Roxor utility vehicle, Shah said with regard to MANA, where M&M withdrew from participating in the US Postal Service order in the June quarter citing inadequate financial returns on investments required.
Last year, MANA was hit by a lawsuit from the maker of Jeep SUVs, FCA, over Roxor’s design. The legal tussle prohibits the Indian company to produce and sell Roxor in the US. “We sold out all the units we made as part of 2019 and 2020 models. The 2021 model is in court right now. The initial ruling came in our favour that the model does not infringe anything. The final ruling is expected soon,” Shah said.