M&M plans capex of Rs.15,300 crore by FY24

In the last couple of days, the stock of Mahindra & Mahindra (M&M) has been among the top gainers on the Nifty. It is true that results were good, but there is more to it. The flagship company of the Mahindra group has laid out an aggressive capital expenditure plan of Rs.15,300 crore between FY22 and FY24. It shows a lot of confidence in revival of the auto cycle and also a clear indication that the capex cycle may have well and truly begun.

The capex of Rs.15,300 crore will be spread across 3 financial years and will straddle multiple businesses lines of M&M. In terms of business lines, the capex will cover automobiles, farm equipment and the much sought after electric vehicle (EV) businesses. In FY22, M&M has already pumped in capex of Rs.3,200 crore and the balance amount of Rs12,100 crore is expected to be spent as capex by M&M between FY23 and FY24. 

Why are the markets excited about it?

The reason is that it marks a significant upward shift in capex plans of M&M. Currently, M&M has been pumping in capex in the range of Rs.3,000 crore to Rs.4,000 crore annually. However, amidst the shortage of microchips, this had slowed down significantly. Now M&M wants to make up for it by going more aggressive on its capex plans. Even peers like Maruti and Tata Motors are boosting capex in a big way.

There are multiple birds that M&M plans to hit with the capex stone. For instance, M&M wants to consolidate its leadership in the SUV and tractor segments. At the same time, it is also planning a major foray into the green mobility segment with its “Born EV” platform from 2025. In terms of the capex break up, Rs11,900 crore has been earmarked for the automotive business and Rs.1,900 crore will go into ramping up the XUV7OO model.
 

M&M confirmed that they had addressed the chip shortage issue through various initiatives. For instance, it had created alternate supply lines, which had boosted their volumes in a big way. Among its various strategies, M&M is working hard on cost optimization and also on de-risking the supply chain. M&M already has 17% share of the SUV market and plans to improve its market share even further on the strength of its organic initiatives. 

There are some other interesting initiatives in the offing by M&M. It will unveil the “Born Electric Vision” at the Mahindra Advanced Design Europe in Oxfordshire, UK. M&M has already announced plans to partner with Volkswagen AG of Germany for batteries and EV components. On the SUV front, M&M has a strong order book of over 1,700 open bookings. But the big dream currently is to have a very strong position in electric.

M&M has also set aside Rs3,400 crore as capex for the farm equipment business by FY24. This will include Rs.400 crore for setting up a new tractor plant. Mahindra already has a commanding 40% market share in tractors and just increased its share by 1.8%. The farm and auto segment saw 29% growth in revenues and these capex plans should serve to enhance their franchise value substantially in the coming months.