Mahindra & Mahindra ₹37,000 Crore Plan to Defeat Maruti Suzuki & Others

₹9.6 lakh crore-worth automobile sector in India is heating up, and all the top players are raring to be the best. Amidst the competition, Mahindra & Mahindra (M&M) is planning something major with an infusion of ₹37,000 crore into its business.

This investment will be utilized in fixed divisions in multiple sections of M&M's businesses like EV, auto, and more. This announcement has led to a massive boost to M&M's share price as it went up from ₹2200 to ₹2500 in just 2 days . In fact, the CAGR return of Mahindra & Mahindra's price chart is trailing at 97.9%, which is good news for investors.

So, let's take a look at what this new plan is, how it will impact the stock market, and what dangers it will bring to its peers like Maruti Suzuki, Hyundai , Tata Motors , etc.

M&M's Overall Investment Plan

Gracing the position of 4th largest auto manufacturer in India , Mahindra & Mahindra has announced a significant investment plan for the next three years, from FY 2025 to FY 2027.

M&M plans to invest a total of ₹37,000 crore across its various business segments. This amount will be allocated to the following sections:

A major portion of the investment (around ₹27,000 crore ) will be directed towards the auto business. This includes:

• ₹14,000 crore for Internal Combustion Engine (ICE) vehicles, the kind of engine your automobile most probably has
• ₹12,000 crore for Electric Vehicles (EVs)
• ₹5,000 crore will be invested in the farm equipment business, which is a strong revenue generator for M&M

The remaining ₹5,000 crore will be allocated to the company's service sector businesses, including Tech Mahindra , Mahindra Holidays & Resorts , and Mahindra Financial Services .

Funding Strategy & Product Launches:

Apart from the inclusion of capital in its businesses, M&M is also planning to launch 23 new vehicles by 2030 . Some of the models you can see in the market would be:

• 9 new ICE SUVs
• 7 new Battery Electric Vehicles (BEVs)
• 7 new light commercial vehicles, etc.

Another thing of note here is that the company plans to fund the planned investments through internal accruals , meaning each segment will generate its own funds. This way tracking the profits and accurate usage of funds would be done efficiently.

M&M's strategy focuses on capitalizing on its existing strengths in SUVs , tractors , and pickup trucks , while simultaneously growing its newer businesses in the EV sector.

This is a significant investment plan for M&M, indicating its ambition for future growth in both traditional and electric vehicle segments.

Story of M&M's Formation

So, way before India got its independence, Mahindra & Muhammad was incorporated by two brothers, Jagdish Chandra Mahindra and Kailash Chandra Mahindra , and their friend Malik Ghulam Muhammad .

But with the India-Pakistan partition, Malik Ghulam Muhammad decided to leave for our neighbour; hence, the company was renamed Mahindra & Mahindra.

Wondering how it all took place? # KnowItAll from this article: The Rise of Mahindra & Mahindra Group.

Automobile Sector Overview

India stands as the world's third-largest automobile market and the largest manufacturer of three-wheelers, passenger vehicles, and tractors. It also holds the position of the second-largest manufacturer of two-wheelers .
It won't be too farfetched to say that India's automobile industry is like a big honey bee nest for top auto companies.

That's how multiple brands like Harley Davidson , Mercedes Benz , Maybach , Jaguar , BMW , etc., are present in India. Even Elon Musk's Tesla is planning to enter the Indian market. If things go as per the original plan, then you might be able to buy a Tesla by the end of 2025.

If you look at the top players in the sector, the big four are Maruti Suzuki, Hyundai, Tata Motors, and M&M. Other companies are also trailing behind, but these four take the cake when it comes to grabbing the most market share.

Now, India's population of over 140 crore is still growing and is one of the youngest in the world. The rapidly increasing young population is bound to purchase more and more automobiles (many will get their 1st vehicles), and hence, demand will shoot up.

This means that the golden period of India's automobile is going to arrive soon. In January 2024, the total production of passenger vehicles, three-wheelers, two-wheelers, and quadricycles was 23,28,329 units.

As for EVs, India is on track to become the largest market in the world by 2030. After all, our government's focus is on reducing carbon emissions and adopting as many green energy resources as possible. This in turn is becoming a major challenge to the automobile industry.

Challenges in Front of Auto Sector

These positive prospects doesn't completely hide the challenges the automobile industry has been facing:

a. Supply Chain Disruptions:

The COVID-19 pandemic exposed vulnerabilities in global supply chains. Shortages of critical components, especially semiconductors, have hampered production and led to extended waiting periods for vehicles. This is especially the case for foreign car brands that are imported to India.

b. Rising Costs:

The industry is grappling with rising costs of raw materials like steel , rubber , and other essential commodities. The GST application of 28% also contributes in taking the high price to further high. This translates to higher vehicle prices, potentially reducing consumer demand.

c. Shifting Consumer Preferences:  

Consumers are increasingly looking towards electric and hybrid vehicles due to environmental concerns and rising fuel prices. This is a challenge for traditional carmakers who are heavily invested in ICE (Internal Combustion Engine) vehicles.

d. Stricter Regulations:

The government is implementing stricter emission regulations to combat pollution. Meeting these standards requires significant investments in cleaner technologies, which can put a strain on carmakers' finances.

e. Bottleneck infrastructure:  

If you reside in a metro city like Mumbai or Bangalore, you would be familiar with this pointer. India's road infrastructure struggles to keep pace with the growing number of vehicles. Traffic congestion and poor road conditions not only affect fuel efficiency but also deter potential car buyers.

f. Financing Issues:  

Access to affordable financing is crucial for car purchases, especially for two-wheelers in smaller towns. A tight financial situation or stricter lending norms by banks can dampen overall sales. Sure, personal loans for buying vehicles are available but the high interest rates and low credit scores often discourage applicants.

Now that we have covered the automobile industry, let's take a closer look at the standing of M&M in terms of its financials.

M&M Financials & Peer Comparison

You might have heard people in the finance sector saying the phrase “ if you invested ₹5,000 or so in this company 10 years back then you would have “this” much money. And that amount was usually something in either 6 or even 7 figures, giving us the missed-opportunity vibes.

How would you feel if I told you that this statement applies to Mahindra & Mahindra as well? Annoyed, right? I'm right there with you!

In just one year, M&M generated a CAGR Return of over 95% for the investors. It's not that big a surprise seeing as the company's revenue has increased 16 times in just 2 years along with a tripled profit margin.

This financial marvel was accompanied by a 19% Return On Equity (ROE). M&M is India's no. 1 SUV manufacturer by revenue market share of 19.1% . This number saw a whopping 370 bps as per the company 2024 Annual Report.

Present in 100 countries, here's the other automobile models where Mahindra & Mahindra is rocking:

• Light Commercial Vehicles (LCV): 45.5%
• Farm Equipment: 41.2%
• Electric 3 Wheelers: 67.6%

Another interesting thing that many don't know about this automobile conglomerate is that it is the only Indian OEM in Formula E ll-Electric car Racing Competition. Exhilarating, right?

With manufacturing plants in 21 countries , Mahindra & Mahindra has a volume over 6.9 lakh and 4.07 lakh automotive sector & farm equipment sector sales units respectively. This makes the manufacture capital of M&M in the following manner:

The company's present production capacity and futuristic plans look good and are bound to benefit it in keeping with the changing times. However, M&M is not the only one with big plans on the route.

Its competitor Tata Motors has also announced a major 43,000 crore investment plan . Tata Motors is planning to invest this capital in products and technology to keep pace with the modernised sector. This revelation explains the company's desire to improve its electric vehicle division and further advance its position in the Indian market.

The Bottom Line

In conclusion, Mahindra & Mahindra's ₹37,000 crore investment plan signifies a strategic shift towards a future-proofed automobile industry presence. While it acknowledges the strength of its existing ICE vehicle portfolio, its focus on electric vehicles reflects changing consumer preferences and stricter emission regulations.

However, navigating the challenges of rising costs, supply chain disruptions, and infrastructural limitations will be crucial for its success. This investment plan positions M&M as a key player in shaping the landscape of the Indian automobile industry in the years to come.

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Finology Insider and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.