3 Bumper IPOs of Mahindra Group coming soon

3 Upcoming IPOs of Mahindra Group

Introduction

Mahindra group is planning to come up with an IPO of 10 of its most promising businesses in next 5-7 years as a part of its value unlocking process. Let us discuss three such promising IPOs of Mahindra Group in this blog.

3 Bumper IPOs of Mahindra Group

About Mahindra Group

• Among these, 5 listed businesses of Mahindra Group are as follows:

• Company also has wide presence across 100+ countries and 72+ manufacturing facilities around the world.
• ~50% of the revenue is from outside of India.

• Company is planning to list its 10 business across 4 sectors as a part of its value unlocking process.
• These four sectors are – Mobility, Clean Energy, Infrastructure & Technology, Rural and Financial Services.

Mobility Sector

• The companies which Mahindra Group has identified for IPO are as follows:

• Out of these, First Choice Wheels will come with IPO in the next financial year where company is looking to capitalize the demand momentum for pre-owned cars. Stronger consumer connect will allow the car business to grow faster.
• The other two businesses will go public in next 5-7 years.
• Here although, the companies are not profitable currently the revenue generation seems healthy with total revenue ~INR 1700 crore.
• The companies are present in businesses like electric mobility, manufacturing of premium motorbikes, etc which have better prospects in future. Due to this, in upcoming 1-2 years, company will be able to break-even in terms of profitability.

Clean Energy Sector

• The companies which Mahindra Group has identified for IPO are as follows:

• As seen ,this is a profitable venture and has bright future prospects in terms of revenues and earnings visibility mainly due to Government’s thrust on promoting clean energy sources.

Infrastructure & Technology

• The companies which Mahindra Group has identified for IPO are as follows:

• Gensets is involved in the business of manufacturing Diesel generator and has good profitability currently. However , earnings visibility seems a little bleak given the shift to electric vehicles in most of western countries as well as in some countries in Asia.
• Mahindra Group’s steel processing business looks promising in terms of revenue and profitability as well as its future prospects given government’s plans to announce the vehicle scrappage policy sooner.
• Bristlecone supply chain business is also upbeat given its elite clientele of Fortune 500 companies. Company expects 10x growth in this company in next 4-5 years and has visibility of strong operating profit margins.

Rural & Financial Services

• Mahindra Rural Housing Finance mainly deals in tier 2, tier 3 cities and villages. Company is trying to improve its rural penetration on the back of wide reach and strong dealer network. Company will also be a beneficiary of government’s ‘Housing For All’ policy and hence can have good margins and profitability.
• Mahindra Group is also present in Tractor business through its Mahindra Tractors. Although the company is not profitable in FY20, given the robust demand scenario in tractors, it is likely that company will turn profitable by FY21. It can also be a pure play in Tractors similarly to Escorts Ltd.

Upcoming IPOs

• 10 businesses shortlisted by company for value unlocking are :

• Out of these 10 businesses, 3 businesses (First Choice Wheels, Mahindra Accelo and Bristlecone) are set to go public in next year and remaining 7 in next 5-7 years.
• Although the individual revenue contribution is not significant, cumulatively these companies contribute around ~INR 10,000 crores to the group’s revenue.
• Company is undertaking this value unlocking process as it is expected to boost RoE to 18% overall as they are well-positioned businesses and have strong ability to execute and deliver profits.
• Many of these businesses are generating healthy cash balances and they will not require more cash from parent for their further operations.

Action on Loss Making Subsidiaries

• One of the part of company’s value unlocking process also entails exiting its loss making businesses.
• Mahindra group has decided to exit from its 3 loss making subsidiaries.
  • SsangYong Motor Company – Korean Subsidiary of M&M
  • GenZe – US-based electric bike startup
  • GippsAero Pty Ltd – Australia-based small Aircraft Maker

Tighter Capital Allocation norms

• In order to improve its return ratios, company has come up with tighter capital allocation norms to control the capital inflow to loss making subsidiaries.
• Loss-making Businesses/entities will be closely scrutinized & classified into 3 categories : A, B and C