- 2018-12-11
Indian tractor tycoon Mittal: overthrowing the market leader
CyriacMathew, the Indian co-head of the private equity giant Blackstone, said: “International Tractor Co., Ltd. has excellent products and basically does not require maintenance. The company also has excellent manufacturing capabilities and Cost structure, high profit margin, and created the highest rate of return on capital."
The company mentioned by Matthew refers to the International Tractors Ltd. (ITL) founded by Lachhman Das Mittal at the age of 65 and became the third largest in India. A major tractor manufacturer with revenue of 660 million U.S. dollars.
The tractor tycoon has a net worth of US$1.95 billion, ranking 52nd on the list of the richest in India. His assets are mainly 70% of the shares held by the privately-owned International Tractor Co., Ltd. The company produces 77,000 tractors, many of which are sold to the two prosperous northern wheat-growing provinces of Punjab and Haryana. Tractors are the most powerful machines, and the company is the Indian market leader in tractors with more than 50 horsepower and the most profitable company.
The group holds nearly 18% of the shares of International Tractor Co., Ltd. "The company has a strong leadership team in northern India, and its management family shares the same destiny with the tractor."
The Mittal family is working hard to realize the plan called Mission 2020. After investing US$80 million, a factory in Punjab has doubled its production capacity to 200,000 vehicles. The factory's production line can produce 500 engines a day, and it has a robot painting line and a fully automatic testing device.
The company was established in 1990. At that time, Mittal retired from India’s largest insurance company, the state-run Life Insurance Corp. of India. Before retiring, he served as a regional deputy manager (his daughter Usha Sangawan [Usha Sangawan] currently Is the first female general manager of an Indian life insurance company). After retiring, he used traditional Urdu to write and read poems (he has a master's degree in Urdu and was the best in his class when he was studying at Punjab University). He also manages the family's business-Sonalika Implements, founded by his father in 1969-which produces grain drills and wheat threshers. Farmers and dealers hope to buy tractors from Sonalica Appliances.
After several years of testing and equipment adjustments, based on government technical support and farm feedback, Mittal finally founded International Tractor Co., Ltd. and launched its Sonalica tractor product line. The product name is borrowed from the popular wheat seed brand. It is the seeds of this brand that have promoted the green revolution in India and greatly increased production. Sonalika means "golden thread" in Hindi, and it has always been their golden thread for the Mittal family.
Amrit Sagar will take over from his father, who is known for knowing farmers. "We are well aware of their requirements," he said. "We provide tractors with lower fuel consumption, better operability, and lower emissions."
86% of International Tractor Co.'s sales come from India, although the company also has overseas partners. The company established a foreign joint venture early and launched the Solis tractor product line using French expertise in 2002. At present, Japanese agricultural equipment manufacturer Yanmar Co., Ltd. (Yanmar) holds a 13% stake in International Tractor Co., Ltd.
But the Blackstone Group bought 12.5% of the company's shares in 2012, and it was this matter that brought Mittal & Co. into the spotlight. This acquisition is also the result of two years of hard work. "They were reluctant to sell shares to a certain extent," recalls Blackstone's Matthew. "The company has not used debt financing for a long time. And although the company often pays large dividends, the company has an excellent cash balance. Net."
Blackstone wants to buy 20% of the shares, but International Tractor Co., Ltd. cannot accept this. As Mittal understands, he has a great advantage: 22% of EBITDA, compared to 15% in the industry. In addition, the company has no debts and low operating costs. "We don't need these funds," he said. "We understand the company's future prospects. The company will grow exponentially in size. Why should we sell those shares to others?"
In the end, the Blackstone Group persuaded him and convinced him that the combination of the two companies will help this regional tractor company expand its reputation in overseas markets and acquire more international technologies. Mittal went on to persuade his sons.
International Tractor Co., Ltd.'s share in the Indian market is rising, and Mittal hopes to occupy one-fifth of the Indian market within three years. During the same period, the company will also add another 1,000 employees to the current 4,000 employees.
In the face of current domestic demand, Mittal's optimism seems a bit out of place. Last year, tractor sales fell by 13%, the largest decline in a decade. "The rainy season precipitation this year was lower than normal, and the prices of farmers' crops have also fallen. The two factors have been combined," Mumbai Indian Industrial Credit and Investment Bank Securities Co., Ltd. (ICICI Securities) chief automotive analyst Ni Nishit Zota said, "Demand will continue to weaken next year." He believes the decline will be greater than 3%.
However, International Tractor Co., Ltd. has been maintaining the pace of development-in Indian rupees, last year's increase was 9%. The growth rate this year is expected to be 15%. "The rainy season is very important, but we don’t rely on it entirely," Mittal said. "We also have customers in other fields, such as the construction industry. And did you know that tractors are the cheapest form of transportation in some parts of India? ."
If International Tractor Co., Ltd. can triple its annual export volume to 50,000 units-which is another goal in Mission 2020-the company's development will be substantially improved. The company is building assembly plants in Brazil and Turkey. Previously, the company had established three smaller plants of this type overseas.
Although it would be quite difficult to overthrow the market leader, International Tractor Co., Ltd. has been rising in India in the past five years, surpassing Escorts in New Delhi and John Deere in the United States. Mittal is a confident salesperson. He declared: "I can persuade anyone to buy my tractor."