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Mahindra Partners, the private equity firm of the Mumbai-based Mahindra Group, will invest $225 million to build 1 gigawatt (GW) of solar assets in the next 2-3 years, a top executive said.The move is part of an effort to create new businesses that will help the conglomerate reach its ambitious target of $50 billion in revenue in the next few years. To boost this, Mahindra also plans to raise another $225 million in the next 3-4 years for the solar business from infra and pension funds, said Parag Shah, managing partner of Mahindra Partners.
“While we will put in $200-$220 million of our own… we will be very happy to bring in large infra funds and pension funds who want to come along and help us make this 1 GW a 2 GW or 3 GW,” Shah said in an interview in Mumbai on 7 July. “Over the next 20 years, for the group, it will be a cash-generating business.”
Mahindra Partners manages 11 companies, a mix of new businesses it incubated and older, ailing businesses that it resurrected, which together earn about $900 million in revenue.In an interview, Shah spoke about the group’s plans to list one of its units, plans for its solar business and the challenge posed by e-commerce start-ups to its retail division.
The group plans to list Mahindra Logistics, its third party supply chain and people transport solutions firm, in the next two years, Shah said.The solar business will fall under Mahindra Susten, a holding company for renewable energy which will also do the engineering, procurement and construction (EPC) activities. Under Susten, there will be another unit for business development, which will form multiple special purpose vehicles to bring in investors.
Prior to Susten, Mahindra created a special purpose vehicle with private equity partners in which it held 26% stake to create 45MW of solar capacity as a test case. The project is on the verge of completion.Nimesh Salot, director, corporate advisory Ladderup Corporate Advisory Pvt Ltd, said Mahindra Partners has been successful in developing the concept of incubating themes that are complementary and non-complemantary to its parent’s businesses.
The three-and-a-half years old Mahindra Susten, for instance, saw its revenue grow fivefold to Rs.500 crore in 2014-15 from Rs.110 crore in the previous fiscal year.Mahindra’s solar plans got a boost after Prime Minister Narendra Modi raised the government’s target for solar energy by 33 times to 100,000 megawatts (MW) by 2022 to meet the rising power demand and overcome the frequent outages that plague the economy.
An executive at a consulting firm acknowledged that Mahindra Partners got the solar business right.
“Mahindra Partners incubates these and grows them to a scale and (then) hives them off,” added this person who asked not to be identified.The firm is also readying Mahindra Logistics for an IPO after its turnaround.
“Within Mahindra Partners, the one (IPO) which could happen first is Mahindra Logistics but that is still a couple of years away,” Shah said.The e-commerce boom has generated 30x (or 30 times) returns for the group. Mahindra Logistics ended the year to 31 March with revenue of around Rs.900 crore.
The company’s retail business, however, remains a challenge as it faces stiff competition from e-commerce start-ups.In March this year, Mahindra Retail, which runs the Mom & Me chain of kidswear stores, in a clear change in strategy, shifted focus to online sales, shut nearly one-fourth of its stores and scrapped plans to open 350 Mom & Me stores across the country. The downsizing does not worry Shah. “We are only 80 stores across the country. The best retailers in the world, every year they have 10% of their stores going through the churn. It is a part of the business model in the retail industry,” he said.
Though kidswear is a large business—more than $12 billion in sales in India, according to some analysts—many retailers have failed to build a viable model in this category. Currently, Mom & Me and rival FirstCry—which has more than 100 stores and a large online business—are the two big survivors. “Our focus is really up to 3-4 years (as against up to nine years previously) at the toddler because after four it is more about fashion, which is a very different play,” Shah said. “It has been a difficult business but mother and child is the best place to be in.”
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