Won’t raise stake in RBL Bank without strategic value: M&M
NEW DELHI : Mahindra & Mahindra Ltd’s decision to buy a 3.53% stake in private lender RBL Bank Ltd for ₹417 crore is not a sign of wavering capital allocation discipline, Anish Shah, managing director and chief executive of the Mumbai-based automaker said on Friday. Explaining the rationale behind the surprise move, Shah said the company will make targeted investments to drive returns and focus on execution to “show outperformance", unlike in the past where the execution of its capital allocation actions wasn’t “strong enough". He, however, added that M&M doesn’t have any plan to enter the banking business or raise its stake unless there is a “compelling strategic reason in the future".
It also won’t invest in any other bank, he said on the sidelines of the June quarter results press meet. M&M nearly doubled its standalone net profit to ₹2,773.73 crore in the three months ended June, from ₹1,403.61 crore a year ago. This included a one-time gain of ₹405 crore from the KG Mobility, formerly Ssangyong, after it was bought out of bankruptcy by Korea’s KG Group.
Revenue from operations rose 22% from a year earlier to ₹24,056 crore. Two weeks ago, M&M shareholders raised questions on the rationale behind investing in a bank as an industrial house and the prudence of its capital allocation decisions, with JP Morgan in a 26 July report, indicating that “free capital allocation worries can cap stock re-rating even as earning trends remain robust". “The strategic rationale for this particular investment is it’s a core business in financial services.
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