The Conversation—Anish Shah

GROWTH WITH CAUTION

It’s been around a year since you’ve been running the group. What is the one big change that you have implemented?

Technically, I’ve been in this role since April (2021), but a lot of the work started in April last year when we started taking the tough decisions. The one big change is going back to the group’s earlier fiscal discipline. Ten years ago, we had leadership that included Bharat Doshi and Uday Phadke, who really drove fiscal discipline. We may have lost that for a variety of reasons, but it was important to get it back, and we are on track.

What has been done to maintain a tighter ship? In the long term, which businesses will break rank, chart a stronger course and see growth in multiples?

What we did in March 2020 was to identify all loss-making businesses. The loss was ₹3,500 crore (most of it due to overseas subsidiaries) then and we put it in three categories. Category A was where we saw an 18 per cent RoI (return on investment) pathway. Category B was less but with a strong possibility of say, 10-12 per cent RoE, and third (Category C) was neither of the above, so the idea was to sell or shut them. SsangYong was in Category C, as was GenZe (electric two-wheelers), GippsAero (Mahindra Aerospace’s Australian subsidiary) and dairy business, which we exited. MFCS (Mahindra First Choice Services) was sold to the TVS Group. We decided not to bid for USPS (US Postal Service) contract to supply small delivery trucks. All necessary actions on Category C have been taken. This strategy has borne results in the last one year and we are expecting losses from overseas subsidiaries to go down to ₹300 crore in FY22 and fur - ther in subsequent years. In Category A, we are working on initiatives for MAgNA (Mahindra Agriculture North America), PMTC (Peugeot Motorcycles) and Erkunt (a tractor company in Turkey) and have restructured MANA (Mahindra Automotive North America) and Pininfarina (a design firm based in Italy). In Category B, there will be a quantifiable strategic impact, and businesses on path to profitability include Mitsubishi Agri Machinery, Sampo (Finland-based farm equipment maker) and Hisarlar Ag Machinery.

The roadmap for the next three years is clear, which is to focus on accelerating core growth: Farm, Auto, Tech Mahindra, Financial Services, and then our growth gems. We have allocated up to ₹3,500 crore over the next three years to facilitate the scaling up of our growth gems. The funding for these gems will come purely from the investment portfolio. We see potential value creation or IPO in the next three-five years in businesses that include Accelo (steel), Agri, Classic Legends, Renewables, Rural Housing Finance, Bristlecone, apart from listed companies Mahindra Logistics, Mahindra Lifespace Developers and Mahindra Holidays and Resorts.

There are also new-age businesses. We may incubate them and then partner with them and stay below the majority level. An example is FirstCry, which is now valued at over $1.5 billion. Then there is Smart Shift (a logistics marketplace), which merged with Porter (a logistics solutions provider). There are others like CarAndBike. We also see promise in Accelo, which makes auto recycling specialty steel for EV components, and the agri business. If you see the core, there are tractors and farm machinery. Globally, farm machinery sales are two times tractors sales. India reports ₹20,000 crore tractor sales and ₹400 crore farm machinery sales a year. So, there is a lot of room to grow in farm machinery, which could go from ₹400 crore to ₹5,000 crore.

We won’t diversify unless we see a very strong potential. It will be auto (EVs, three-wheelers, SUVs) ; farm machinery; Tech Mahindra, which has tailwinds with growing digitisation; and Mahindra Finance. Those are the four key levers. Mahindra Lifespaces is also on a very strong growth path with its land bank. Club Mahindra (Mahindra Holidays) has been growing. Mahindra Logistics is also well-positioned.

A NEW M&M

The company’s rebranding is evident. What’s the driving agenda behind it?

It (rebranding) stands for what M&M is and where it is headed. What you see is a much bolder approach that will take us back to the number one position in SUVs (sports utility vehicles) and what we call authentic SUVs, which are refined, sophisticated, with an unmistakable presence.

There have been several hits and misses with cars, two-wheelers and some smaller businesses over the past five years. As a conglomerate, or federation as it is called internally, how do the ventures come together?

We had a few misses when we strayed out of our zone. SUVs like Marazzo or KUV were not our core DNA. But if you see the last 12 to 18 months, we have been getting great bookings, and there’s a year-long wait for some of the cars. We have 5,000 bookings a month for Thar. XUV300 and Bolero have similar numbers. A new Scorpio is also coming out. We have three blockbusters and expect the number to go to five in the future. That repositions the auto business and puts it on a strong trajectory. Tractors are going strong and technology (business) is strong. Mahindra Finance has had challenges but we have outlined a strategy for it because it has a lot of potential. Mahindra Lifespaces has seen resurgence over the last year or so. Mahindra Logistics seems to be in a strong place; its market cap has almost tripled in the past one year.

The benefit of the federation is the synergy we get. We give businesses the freedom to do what they want with the Mahindra brand adding value. The second advantage is technology synergy. Also, auto and farm verticals get the cost benefit in buying raw materials.

When the Mahindra Research Valley was set up, the idea was to rub off ideas to other businesses and drive synergies. How’s that going?

Auto and tractor businesses have both benefited from Mahindra Research Valley. Ee have also set up a test track that has 12 types of tracks. It will help us make better cars. The biggest is the XUV 700.

Do you have a target for SUV leadership?

Not yet, but with five blockbusters, it should be set soon. These include XUV 300, Bolero Neo, optimistically the XUV 700, the new Thar and the new Scorpio.

Technology has been a key area. You have a stake in Tech Mahindra but only 26 per cent. Could you have boosted that?

I would look at it again. Investing in certain values may not do much for our shareholders. The question is, should we invest the next ₹100 crore, or ₹1,000 crore, in growth gems or these ventures — that’s the way we take a call.

How has the agricultural business cycle helped tractor sales?

Sales grew 20 per cent last year and that has been a function of the entire sector doing well. Rain has been erratic but has continued. Despite a small slowdown, we expect overall industry to grow in single digits but that’s a function of the high base — our market share has been 40 per cent for a long time.

BUSINESS PLANS

Is more consolidation on the cards? Not right now. We did not want to be selective on fiscal discipline. The US Postal Service had a deal with us for a $6 billion contract. The work had been on for two years but we didn’t do it because it didn’t meet the bar for fiscal discipline or returns. So, we wrote off our investments.

What’s the plan for your smaller but high-profile businesses such as aviation and boats?

We shut down the aircraft business in Australia last year because it didn’t meet the bar. Aerostructures is different. It takes 12-36 months to get an order for a part, and once that’s in place, it’s very hard to go away. It’s a business that will have strong foundations. Boats have been very small and don’t need a lot of capital, so we are looking at inflection points as there isn’t very high demand.