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An Industrial audit of Mahindra and Mahindras Farm equipment business.

An Industrial audit of Mahindra and Mahindras Farm equipment business.

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  • Source :finding Higher gear
  • Source : Finding higher gear
  • Source: FES analayst presentation may 2009
  • Source : Annual report 2009
  • Source : FES presentation may 2009
  • Sources: www.hoovers.com, „Industry Overview: Farm Equipment Manufacture“
  • Sources: www.mahindra.com – Farm Equipment Sector - Investor Relations: Annual Report 2008 + Farm Equipment Sector Presentation 2008
  • Sources: www.mahindra.com – Farm Equipment Sector - Investor Relations: Annual Report 2008 + Farm Equipment Sector Presentation 2008
  • Sources: www.fao.org: „Feeding the world in 2050“ „ Global Agriculture towards 2050“ www.mahindra.com – Farm Equipment Sector - Investor Relations: Annual Report 2008
  • Sources: www.fao.org: „Feeding the world in 2050“ „ Global Agriculture towards 2050“ www.mahindra.com – Farm Equipment Sector - Investor Relations: Annual Report 2008
  • Sources: www.mahindra.com- Investor Relations: Annual Report 2008 http://biz.yahoo.com: „John Deere“, „CHN“, AGCO“ www.AGCO.com www.CHN.com www.johndeere.com http://westernfarmpress.com/mag/farming_agco_makes_bold_2/ http://www.thefifthseasonhotel.com/John-Deere-Davenport-Hotels-Moline.shtml
  • Source: http://www.usnews.com/money/business-economy/articles/2008/01/24/3-farm-equipment-stocks-to-watch.html http://biz.yahoo.com: „John Deere“, „CHN“, AGCO“ www.AGCO.com www.CHN.com www.johndeere.com
  • www.mahindra.com – Farm Equipment Sector - Investor Relations: Annual Report 2008 www.freedoniagroup.com: „World Agricultural Equipment“
  • Transcript

    • 1. Mahindra & Mahindra Farm Equipment Sector – Tractor BusinessInternational Audit case studyInternational Business ManagementProf. Jean Paul Lemaire  Matteo LanziWeifeng ZhangNaufal KukkadyDonata von Schack26/11/2009
    • 2. AgendaPresent CompanyExternal AnalysisInternationalization AssessmentInternational Development Strategy stant (Change via View - Header and Footer) -2-
    • 3. General Presentation of Mahindra Group The Mahindra Group  Large industrial conglomerate in India  One of the most reputable Indian industrial houses  US $6.3 billion conglomerate with employee strength of over 75000  Ranked amongst Forbes Top 200 list of the Worlds Most Reputable Companies  Leadership in utility vehicles & tractors in Indian market Sectors of operation:  Automotive  Farm equipment  Financial services  Trade and logistics  Automotive components  After-market  IT  Infrastructure sectors Headquarters located at Mahindra Towers in Mumbai -3-
    • 4. Mahindra group: Global footprint Operations in 25 countries, 6 continents -4-
    • 5. Organizational StructureMahindra operates in afederal structure The various businesses viewed as investments They are evaluated only by financial performance All its businesses except the newest ones are listed separately Automotive and Farm equipment are listed together as M&M Ltd as they display great synergies -5-
    • 6. History1945  Incorporated by KC Mahindra and Ghulam Mohammad as a Mahindra & Mohammad to manufacture Jeeps under license of Willys1948  Mahindra & Mohammad became Mahindra & Mahindra  Built on his expertise in the steel industry & began trading steel with UK suppliers1956  Listed on Bombay Stock Exchange1969  Entrance into world market as exporter of utility vehicles and spare parts1982  Restrictions of License Raj  Forced to expand into other businesses, creating a tractor division1986  Created tech division (now Tech Mahindra)  Continued to diversification since through JVs and Greenfield investments1994  Group divided into 6 Strategic Business Units:  Automotive; Farm Equipment; Infrastructure; Trade and Financial Services; Information Technology and Automotive Components (Systech)2000  New Managing Director Anand Mahindra introduced new logo2002  Successful launch of the Mahindra Scorpio (a wholly indigenously designed vehicle)2007  Ranked among top 10 Indian companies in “Global 200: The Worlds Best Corporate Reputations” list. As well as one of India’s 40 largest companies -6-
    • 7. GovernanceCode of Corporate GovernanceA reminder of the underlying principles governing theconduct of the businessesTo achieve the best performance within the overallcontext of the prevalent economic environmentTo secure maximum benefit for all the stakeholdersBenefit:Successfully integrate the beliefs, values, culture andethics of Mahindra Group to the system and processBlue Chip MantraAt M&M annual conference key priorities are defined -7-
    • 8. Core Values Good Corporate Citizenship  Seek long term success, in alignment with the countrys needs, without compromising ethical business standards Professionalism  Seek the best people for the job and giving them the freedom and the opportunity to grow  Support innovation and well reasoned risk taking, but will demand performance Customer First  Respond to the changing needs and expectations of the customers speedily, courteously and effectively Quality Focus  Make quality a driving value in the work, in the products and in the interactions with others  Believe that the quality is the key to delivering value for money to the customers Dignity of the Individual  Value individual dignity, uphold the right to express disagreement and respect the time and efforts of others  Nurture fairness, trust and transparency through actionsThese values become the compass that will guide both personal and corporate actions of the group -8-
    • 9. Farm Equipment Sector (FES) Mahindra Tractors  Worlds top tractor brands; market leader in India  Core business Mahindra Samriddhi  Offer a wide range of agri-related services Mahindra Applitrac  Offer total farming solutions to increase mechanization level Mahindra Shubhlabh Services Limited  Export seeds, vegetables and fresh fruits Mahindra Powerol  Produce Diesel Generating sets and engines -9-
    • 10. Farm Equipment Sector (Tractors) Among the top three tractor brands in the world The first tractor company globally to win the Deming Application Prize in 2003 The first tractor company worldwide to win the Japan Quality Medal in 2007 Domestic operations  No. 1 tractor brand in India, since 1983, with a domestic market share of around 41%  Sells a range of tractors: Bhoomiputra, Shaan, Sarpanch and Arjun Ultra-1  High fuel efficiency and reliability  15 HP to 75 HP category tractors for the domestic market International operations  Spread across six continents and in around 25 countries  State-of-the-art manufacturing plants in India and China, as well as plants in USA and Australia  Combined capacity to produce more than 170, 000 tractors a year  More than 1000 dealers world-wide  25 to 125 HP category tractors for international market - 10 -
    • 11. Area of Reference 3 2 5 6 1 Number of Plants Tractor categories Domestic Market: 15 HP 25 HP 75 HP 125 HP International Market: - 11 -
    • 12. Expansion 1994  M&M FES starts its expansion by entering Bangladesh and Nepal (throughout M/s Karnaphuli and M/s AGNI Incorporated Pvt. Ltd. serving as distributors, after-sale service and training) as well as the American market (Incorporation of MUSA and focus on hobbyist segment <100hp) 2003  Opening of second assembly line in Calhoun, Georgia (USA) to cut costs both for dealers and M&M as well as to improve (after)sale services. 2004  Entering markets of China (JV with JMCG, with a 12,000, 18-33 HP complementary production capacity and an established distribution network), Chile (throughout M/s Gildemeister) and Sri Lanka (M/S DIMO) 2005  Entering markets of Australia (opening of assembly and customer support centre in Acacia Ridge, Queensland), Africa (local dealers network), Serbia and Macedonia (throughout M/S AGROPANONKA MTZ FINKE and Intermotors).  Opening of third assembly line in Red Bluff, California (USA) 2006  Entering the Iranian market throughout an alliance with ITMCo in order to access the 80% market share and assure high quality customer service thanks to the vast network hold by the partner 2007  Entering the Turkish market throughout a partnership with ITCE Group in order to touch the 80% of the farming community made by small and medium size farmers.  Opening of 4 assembly plants in Chaad, Mali, Nigeria and Gambia that import SKU from India in order to deliver to African farmers affordable but still high quality tractors - 12 -
    • 13. Expansion (continues) 2008  Entering markets of Botswana, Egypt, Niger, Congo, Yemen, Argentina and Cambodia  Opening of fifth assembly plant in Ghana, Africa in partnership with ZoomLion Ghana Limited to ensure the technology transfer, provide employment opportunities and create a platform for skills training and capacity building of local artisans. 2009  Second JV in China with Jiangsu Yueda Group (Jinma brand). This strategic move let M&M access a huge distribution coverage (Yueda has footprint in more than 60 countries including USA, Russia, South-America and Africa), a larger manufacturing base both in terms of product line (now up to 125HP) and of economies of scale  Brand building campaign in USA designed to touch upon the various aspects within the life of the typical Mahindra customer. Swaraj Brand 2004  M&M acquires 43,3% of the Punjab Tractors Limited, establishing its position of leader in the Indian tractor market. This acquisition let M&M acquire a wider customer base (with decreasing market share), a richer product portfolio also on an international basis and higher distribution coverage. 2006  Consolidation of stake to 64,4% and displacement of production at PTL in order to utilize its large manufacturing base 2008  Consolidation of stake to a complete merger. Under M&M’s management the sales of Swaraj brand increased by 57% and its market share went from 7,3% to 10,7% - 13 -
    • 14. Financial performanceF2009 results include PTLnumbers from 1st August 2008 Raised Rs 400 Crore in Nonconvertible debentures even in a hostilemarketDomestic market share increased to40.8% as result of mergerGrowth of 25.1% in domestic market incomparison to 0.6% of growth of entireindustrySignificant costs reduced as result ofmergerMaintained good ratings despite thecurrent economic scenario - 14 -
    • 15. Main challenges Record increases in raw material prices, followed by industry wide price increases Increasing labor cost Continued high interest rates for tractor loans High NPAs & resulting stringent lending norms remain a concern Tractor industry exports likely to remain depressed - 15 -
    • 16. AgendaPresent CompanyExternal AnalysisInternationalization AssessmentInternational Development Strategy stant (Change via View - Header and Footer) - 16 -
    • 17. Farm Equipment Sector Sales are directly tied to farm income and crop production projections  Commodity prices, weather, crop production expenses (fertilizer, fuel, pesticide), credit availability Large companies (John Deere, AGCO, and CNH) produce a full array of products, smaller companies generally make a single product line  Production of diesel engines is the major separator between large and small companies → large amounts of capital and expertise required  Big companies have large economies of scale – annual revenue of about $350,000 per employee  Small companies can be successful by making specialized equipment - annual revenue per employee of about $150,000 World tractor market is becoming more consolidated  In developed countries like the US and most of Europe very mature with few key players Largest tractor markets are the US, China and India - 17 -
    • 18. M&M‘s positioning in the Farm Equipment SectorStrategic positioning  Four principles: business leaders, innovative, global potential, financial returns  Strategic acquisitions and Joint Ventures to survive and prosper in an increasingly consolidated market with global reach  Competitiveness, efficiency, distribution competence & network, manufacturing strength, market knowledge, access to markets  Major products: tractors, self-propelled harvesting combines, tractor attachments, equipment used for crop production and farm animal management  Tractors account for about 30% of the market, combines 25%  Strong and durable tractors for small and medium farmers - Product range going up to 125HP  Low cost manufacturing in China and India for exportsStrategic Markets  Mature Markets  US  Largest export market  Niche market of hobbyist segment  Sales of MUS decreased by 32% due to crisis/recession and changing exchange rates  Refocus from declining US market on Africa  EU  Obtained qualification to sell under MCTCL brand  Niche position in US, probably has no other option in other mature markets like EU - 18 -
    • 19. Strategic Markets Home Market  India  One of the largest tractor markets in the world by volume, low penetration  Market leader with 40,8% market share, sales increased by 25% despite flat industry  National tractor market is fragmented with 13 national players  Merger with Punjab Tractors - consolidation, enforced market leadership, cost savings, economics of scale, sourcing benefits, productivity increase Present and entering into other emerging markets  China  China demand for tractors increased by 32% between 2003 and 2008  Further consolidating its position through strategic JVs – Mahindra Yueda Tractor Company  Yueda is Nr 4. in Chinese tractor market according to volume  Broadened product range 16-125HP, low cost manufacturing, large additional distribution network  Domestic presence increased to serve demand for tractors  1st JV - Company growth in 2007 +21% - launched Mahindra tractors in China  Now selling under Mahindra Feng Shou brand not MCTCL Feng Show brand anymore  Launched customer support initiatives to differentiate  Increases its offered product range in China from up to 40HP to 50HP  Africa offers opportunities to expand exports & set up assembly plants  Largest export market besides US, 5 assembly plants  New markets could be Egypt, Botswana, Niger, Congo & Brazzaville  Extended product offer up to 80HP  Test market for launch of new model in South America and Australia  Middle East, East Europe, South America & South East Asia exploring opportunities to extend export - 19 -
    • 20. Political-Regulatory Pressures India: Agriculture priority area for Government  Population base dependent on farming and allied industries, like in many emerging markets  Government support prices for crops in India  Union budget credit allocation to agriculture → to offset liquidity crunch, strict lending norms or farm loans due to higher NPAs, high interest rates for tractor loans, increasing raw material/tractor prices  F-09, the Government of India has proposed to allocate Rs. 2.8 lakh crores / $ 62.2 Bn for agricultural credit  Strong focus on irrigation projects and investment for development of rainless areas with an outlay of Rs. 20,000 crores/ $ 4.4 Bn China:  Abolition of tax on agriculture  Subsidy for tractor purchase Political instability  Present in many target countries (Nepal, Africa) Integration of Indian and global economy  Financial markets, political regulations (pollution and emission requirements)  Rupee appreciation – hedge risk - 20 -
    • 21. Socio-Economic Pressures Transition from many, small subsistence producers  Fewer and larger commercial producers - larger farm operations overall  More non-farm employment World population of 9.1bn in 2050 → raise overall food production by 70% between 2005/07 and 2050  Production in the developing countries would need to almost double  Demand for cereals is projected to reach some 3 bn tonnes by 2050, up from today’s nearly 2.1 bn tonnes  Food and animal feed, bio fuel (political regulations)  Production of biofuels (ethanol & biodiesel) tripled since 2000 → is projected to double again within the next decade 90% of production increases to come from augmenting yields and cropping intensity, only 10% by expanding arable land  Developing countries: ratio at 80/20  Land-scarce countries: achieve growth by improving yields Global recessionary pressures - Indian economy slowed down BUT impact on rural economy minimal  Lower levels of mechanization → significant growth potential Commodity prices  Fuel prices (60% of cost of running tractor) and preference of petroleum as most tractor have diesel engines - 21 -
    • 22. Technological Pressures Market consolidation in every area of farming, demand for increased efficiency will in the long run demand for larger machines as soon as capital and level of development are sufficient  In developing markets the hobbyist segment is marked by competition from second hand retailers  Need to diversify in more upscale products at some point to cover full portfolio Acquisition & retention of technical and managerial talent  Need to remain innovative and anticipate changes in technological demands Alternative fuels mandatory  M&M has already reacted and customizes by providing alternative engines - 22 -
    • 23. Competitive Map Revenue Growth Global Presence - 23 -
    • 24. Competitive Positioning 20 50 100 150 250 300 350 400 450 500 550 600 HP - 24 -
    • 25. Competitors - 25 -
    • 26. Outlook Stabilizing world economy  Growth of Indian economy World demand for agricultural equipment forecasted to rise by 3,8% annually to $112 bn in 2012  Need for increased mechanization in emerging markets  Replacement related demand in industrialized countries  Mostly linked with technology upgrades Competition from world leaders increasing, they strive to profit from promising emerging markets  Introducing machinery specifically designed according to needs of emerging economies  Have leverage and innovative experience which will be hard to compete with  A global footprint Overall thrust on agricultural development by government in India  Government’s emphasis on rural economic development and support to the agriculture sector will create opportunities for growth in farm mechanization - 26 -
    • 27. AgendaPresent CompanyExternal AnalysisInternationalization AssessmentInternational Development Strategy stant (Change via View - Header and Footer) - 27 -
    • 28. Internationalization Anand Mahindra , the new CEO restructured company into 6 businesses in 1994 to deal with India’s liberalization and globalization  Farm equipment sector  Automotive  Automotive components,  Financial services,  Infrastructure development,  Software Reengineered business processes, brought in new people, invested in information technology, and reduced head count. M&M corporate launched the Operation Blue Chip in 2002  Focus on achieving global competitiveness  FES was identified with global potential  Emphasis on innovation  Emphasis on customer centricity “I believe that business families should behave like aggressive private equity companies. They must allocate capital, demand performance, create synergies, sustain value systems, and implement good governance practices, but they should let professional managers run the companies.” - 28 -
    • 29. Encirclement Strategy Segment Scope Diversity - 29 -
    • 30. International Diagnosisv M&M: expanding international presence and first establishment of multinational hubs (USA, Australia) - 30 -
    • 31. International Diagnosis (continued) Key Functions Specific features • 20-125 HP reliable tractors Production • Lean and agile: production of SKU in India and assembling in local facilities • Emerging markets: M&M ties up relationships with established local distributors network (e.g. in Sri Lanka, Bangladesh and Nepal with one Marketing of top10 corporate houses) • Mature markets: Investments to adapt brand image to customer lifestyle (Mahindra USA brand building campaign through sponsoring • Rated AA- by CRISIL for long term ,highest rating for short term Finance • Been Able to raise capital in International Markets • M&M enters particularly strategic markets through JVs (China and Iran) or Partnerships (Turkey) Strategy • M&M has managed to balance the global downturn by focusing on emerging economies - 31 -
    • 32. Opportunities for international Expansion M&M in a great position to serve emerging markets - lower levels of mechanization  First mover advantage  Expertise in this field  Leverage its education programs and power supply expertise  Local International market: FES plans to expand aggressively into newer markets and strengthen its presence in existing markets In the long term growth opportunities may be capped if M&M remains in its field of small tractors, especially if big players enter the market. Diversifying within area of expertise seems to be a sensible move. - 32 -
    • 33. AgendaPresent CompanyExternal AnalysisInternationalization AssessmentInternational Development Strategy stant (Change via View - Header and Footer) - 33 -
    • 34. Recommendations - 34 -
    • 35. Thank you for your attention !!!!!!!!!!! - 35 -