Mahindra & Mahindra Could Spin-Off Farm Equipment Division For Growth Opportunities in the Future

Mahindra & Mahindra, the tractor market leader, may consider spinning off its farm equipment company in order to capitalize on future growth potential. The Mumbai-based corporation, on the other hand, is not considering demerging the tractor industry from itself at this time.

"We may look at a spinoff of the farm machinery business because that is one area where we see huge potential for growth and it may require a very different mindset for driving that growth, which can actually be 10X growth in 3-5 years, potentially even more," Anish Shah, Managing Director and CEO of Mahindra Group, said.

“However, nothing has been finalized as of yet. This is only for farm machinery and farm equipment. We are not aiming for a demerger of the farm business right now,” he added.

M&M has bolstered its position in the non-truck, farm equipment and machinery market, where it collaborates with Japanese and European companies to produce tractor implements, harvesters, and rice transplanters. M&M has acquired majority ownership in Turkish companies that provide equipment for land preparation, sowing, crop care, harvesting, and post-harvesting.

Under its own brand, M&M also manufactures and sells equipment such as cultivators, disc harrows, bucket scrappers, potato planters, boom sprayers, threshers, and shredders, to name a few. Mitsubishi-Mahindra, an Indo-Japanese joint venture in which M&M has a 33% stake, manufactures power tillers, mini rotors, and horticulture machinery.

Share in Revenue

M&M's farm equipment division, which includes the tractor business, currently accounts for 29% of the company's total consolidated sales. While the agricultural equipment segment grew by 2% in the fourth quarter of 2021 compared to the same period the previous year, the firm provided different revenue data for its non-tractor vertical.

M&M's automotive segment, which includes SUVs, trucks, buses, and three-wheelers, is the most profitable, accounting for 41% of the company's total consolidated revenues. In the domestic tractor market, M&M has a market share of more than 40%.

Analysts have suggested to M&M in the past that the farm equipment industry (including tractors) be demerged and M&M become a strictly automotive corporation. This would have made it easier to unlock the value of the M&M shares. The tractor industry, on the other hand, has aided the company in overcoming a fall in passenger car demand on multiple occasions.

"The more interconnected things you accomplish, the more difficult it is for competitors to copy. You make someone happy in the short term by spinning off tractors, but eventually, you're just like everyone else. You run a tractor business on your own. "We are not private equity guys; we are looking at what we have developed over time," M&M Chairman Anand Mahindra said in a statement.