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Shyam G. Menon
Latha Venkatraman

MUMBAI, Nov. 1

MAHINDRA Shubhlabh Services Ltd (MSSL), a subsidiary of Mahindra & Mahindra Ltd (M&M), has initiated talks with interested financial institutions for possible capital infusion to fund its agricultural services business.

Though it is yet to decide whether the said infusion should be as equity or debt, Mr Kairas Vakharia, Chief Executive Officer, MSSL, said, ``the Mahindras would continue to hold an overwhelming majority.'' Agricultural services are synergic to M&M's operations, given its domestic market leadership in tractors.

The names of parties being spoken to were not divulged. But Mr Vakharia profiled the ideal partner for MSSL as a financial institution with interest in funding agricultural initiatives since the involved returns and gestation periods are quite different from that of conventional industry.

The two-year old MSSL is yet to break even, having reported a loss of Rs 5.23 crore on an income of Rs 7.37 crore for the year ended March 31.

In line with the weak monsoon and its impact on agriculture, the current fiscal is perceived to be tough for business.

But MSSL is seen as a prospective big business, long gestation period notwithstanding, given the scope for farm-related services in a large agricultural sector as India's. ``Today, farmers do not get a complete choice in agri-inputs or machinery. We provide the entire range,'' Mr Vakharia said.

It is perhaps the only focussed outfit of its type currently around with corporate parentage, most others being the out-reach facilities of fertiliser and agro-chemical manufacturers. The latter set-ups usually look at geographies where their parent company has strong markets. MSSL, in comparison, has a broader mandate.

The company functions with agri-service centres (ASCs) — in the form of subsidiaries or franchisees — as the basic service module. Under each ASC are three types of operations — retailing of agricultural inputs with guidance on application; renting out farm machinery (essentially such machines which the farmer uses only sparingly and thereby the individual ownership of which is unviable) and commercial agricultural extension services.

These services were said to bring down cultivation cost to the farmer, Mr Vakharia said, pointing out that should the farmer incur any incremental cost it would be more than offset by incremental revenue (yields can be improved by 15-50 per cent). MSSL has tied up with ``a mainstream private bank'' to offer financing to farmers. This, as well as provision of crop insurance planned at a later date, would remain limited to mere distribution, he said.

Additionally, in some cases, MSSL has arrangements with buyers to lift the produce of the farmer. Sometimes, a tie-up between MSSL and a buyer is forged first and the combine offered as an incentive for farmers to consider a partnership. Names of buyers were not disclosed, but MSSL's operations to date cover crops such as wheat, paddy, maize, sugarcane, potato, vegetables, oilseeds (groundnut & soya) and gherkins.

Currently, MSSL has operations in 26 districts (M&M's 2001-2002 annual report credits the company with having 12 ASCs) in Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra, Madhya Pradesh, Chhattisgarh, Gujarat, Uttar Pradesh and Uttaranchal.

Mr Vakharia acknowledged the potential for competition, the prime candidates being the existing out-reach facilities of fertiliser and agro-chemical majors, such as Rallis and Tata Chemicals.

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