May reverse-merge all 16 companies in this segment into single listed entity; to talk to various stakeholders.
The complicated process, which involves reverse mergers, getting statutory approvals from all stake holders and boards of directors of all companies involved, has got “strong approval from the senior management of M&M”.
At present, all its 16 companies involved in making gears, composites, castings, forgings, stamping, steel and ferrites and engineering services operating in India and Germany work under an umbrella organisation called Mahindra Systech. It is the third biggest auto component making group in India, after Bharat Forge and Tata Auto Comp Systems. Turnover last year was $1 billion (Rs 4,500 crore). About 15-18 per cent of its revenue comes from M&M's automotive sector.
Hemant Luthra, president, Mahindra Systech, said, "The plan was always to bring everything under one roof. It now has the strong approval of the senior management of the company, including Anand (Mahindra, vice-chairman and managing director) and the chairman. We haven't taken it to the other investors, who are invested in the unlisted companies."
By bringing all its companies under a common entity, it is aiming to contain expenses which otherwise are incurred over separate purchase, marketing and sales initiatives done the various companies. It will also enable clients to have easier and faster access to the different companies, is the thinking.
In addition to its recent foray into aerospace engineering and manufacturing, it has been supplying forged components to some of Europe's top automotive companies such as Daimler, Scania, Volkswagen and General Motors. The idea now, says Luthra, is to service a client on more than one aspect (for example, forgings) of the business.
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The number of investors in these companies, which involve private equity investors, other financial investors and other minority shareholders, are large. So, the entire operation would be a time-consuming process. It has already started to integrate its front-end operations such as marketing, purchase and sales.
While some resistance is expected from companies not in agreement over its plans, M&M is readying itself for a buyout of stake of such companies in its subsidiaries.
“When we did the QIP (qualified institutional placement) roadshow last year, everybody asked us why we don’t put them together. We did put them together, but on a piece of paper, and we showed it to Anand (Mahindra) a few days ago and by that time, relative valuation of all the companies had also been done by Ernst & Young. As a result of that, we continued to push forward on that plan. The only catch is that if I have someone expressing dissatisfaction over a merger, the only way out would be buying out that investor. Mahindra is very respectful of minority shareholders. Once I have in-principle approval of all stakeholders, only then can I go to the M&M board and to the markets regulator,” said Luthra.
Adding: “We can reverse-merge everything into a listed company. We have got our guys and investment bankers to do a study. If we put everything together, it will reduce costs, we will be able to have a common marketing and sales organisation.”
Presently about half of the company's turnover, or about $500 million, is generated outside India. The company caters to Bajaj Auto, Tata Motors, Toyota, Maruti Suzuki, Ashok Leyland and Hyundai, among others in India.
Luthra also stated he had received feelers of interest from strategic or financial partners from several companies outside India.