Mahindra Group, led by its flagship Mahindra & Mahindra Ltd. (M&M), aims to unlock value through strong emphasis on financial discipline, a path its new leadership has chosen. MD & CEO Anish Shah, who took over the reins recently, elaborates in a video call on the strategy to achieve sustainable profit growth. Excerpts:
Where are you driving Mahindra to?
In one sentence, it is to reignite value creation. And I said reignite because you would have seen many years of very high value creation for shareholders. And we often look back to the 2002 to 2018 period, where M&M was the best performing stock in the Nifty for 17 years. And we lost that somewhere along the way.
We want to go back to the fiscal discipline and really re-energising, reigniting the business to create value for shareholders.
What is the roadmap for sustainable profit growth?
First, to take care of all the loss-making entities, either shut them down or turnaround or sell. That has been done.
Second, to establish and maintain a strong fiscal discipline. That has been done as well.
Third is to drive growth, which is underway.
Drive growth has three components. First is with the core businesses that are Auto, Farm, Tech Mahindra. Second is with growth steps. There are 9 to 10 companies where we have a billion-dollar market cap potential each and we want to realise that potential. And third is creating new-edge platforms where we may incubate, partner, create businesses that eventually go off on their own and create a lot more value for our shareholders.
You have been in M&M since 2014 and was in charge of strategy. When the company was on an acquisition/investment spree, which has now been reversed, you could have red flagged them....
A lot of these activities started about three to four years ago. The plan, when it was set up, made sense. But the execution was not there. And we started red flagging it at that point. For example, we shut down GenZe in February 2019, but we announced it a year later. The decision was driven by [it] not executing as per plan. We did red flag even starting 3-4 years ago.
Which all businesses have been shut down?
We can give you the full list, but I will mention a few. SsangYong [Motor Company of South Korea] is not shut down but we’re not putting in more money. Such businesses may be sold or may be shut down. The second is GenZe which was the U.S. bikes business. The third is Mahindra First Choice Services. The MANA business in the U.S. has been restructured.
More recently, Hisarlar’s metal fabrication business in Turkey and our dairy business in Saboro have been sold. At this point, there is nothing else in that list, but we continue to monitor.
Last year, we had set up the three categories of ABC [entities], where category A was businesses with a path to 18% ROI, category B was businesses with a strong quantifiable strategic benefit, and C was neither of the above and therefore they would not get more capital. Today we don’t have any in C. But we will continue monitoring category A&B.
What is the experience and learning from SsangYong?
In hindsight, there were a lot of benefits. We had certain technologies at SsangYong that we benefited from. The perspective of running a global company helped us.
The downsides were the financial performance because it was a significant drag on capital and it really was never profitable through that time frame except for one quarter. Over the last few quarters, it had started becoming a much bigger loss. So the lessons essentially were that there are sometimes benefits in making such acquisitions, but we have to have a very strong fiscal discipline in doing so. The capital that is allocated to the acquisition has to give returns, either direct returns of 18% plus, or something that we can quantify.
What is the future of SsangYong?
It will be an independent company. It is going through a court process [bankruptcy] right now and it is managed by the court. There are multiple bidders who have come in and one of them will win the bid and take the company forward.
In the EV business you had the first mover advantage since the acquisition of Reva. Suddenly the Tatas entered from nowhere and now they have 70% market share in the EV segment. So what went wrong and what is your strategy?
For EV, there are three key drivers. First is cost parity, second is range anxiety and third is charging infrastructure. For EV to be successful, all three are required. Today, for 2-wheelers and 3- wheelers that exists.
That is not the case for 4- wheelers as yet. It will take some time, but we are looking at creating products that will be very strong in that space and coming out at the right time. So, it is not a game that we have given up leadership. If we look at total EVs, including 3 wheelers, we still are the leaders. When we will develop the next set of 4 wheelers they have to be outstanding products. And that is underway.
We have invested in creating the best in-class EV because we feel that technology is important. So, Leveraging the Automobili Pininfarina brand, we are launching the Battista soon. It is a very high-end EV. The technologies from there will help us build better models in India.
What is the latest on Battista?
There will be only about 100 and 125 units and each unit will be priced at €2 million. So, it is at the very highest end. It has double the horsepower of a Formula 1. So its 1,900-plus power and it’s the first electric car of its kind. It is going to be a collectors’ item. The reveal has been done. We have a car ready that will move to production [line] soon. We have a few buyers lined up and some have given deposits. For us, it is really more about creating a very high-end EV and it is about the technology that goes into it.
Now with every OEM having a portfolio of SUVs, how is Mahindra going to retain its domain in the market?
We have always succeeded with what we call an authentic SUV, which is tough, rugged yet refined and sophisticated. If you look at our history from Bolero, Scorpio, XUV 500, they all have been great models and command a lot of respect and bookings even today. Even XUV 300 has done extremely well. We did a few models that did not work very well. So we have got back to the essence of authentic SUV. Given the recent successes, we feel that it is a space that we can really play very strongly.
As an Indian company, we have been able to deliver best and compete very well with all the global players. Now, we have 26 products lined up over the next five to six years. Nine of them are SUVs. We are at the drawing board [stage] right now.
What is the strategy for the Mahindra group ?
The trend will continue to be Farm Equipment and Auto, Tech Mahindra and Mahindra Finance.
In M&M, some slightly smaller companies are doing extremely well. I will leave out the three listed entities, but we have Accelo which is into the business of auto recycling. It is very well-poised for growth and is likely to be one of the first that comes up to an IPO. We have a strong renewable business, a supply chain company based in Silicon Valley that has huge potential for growth. We have an agri business and defence and aerospace, aerostructures businesses which are strong candidates for us. There are multiple business units that we can scale up and these will drive growth in future.
What is the learning from COVID-19?
One of the learnings was that purpose makes a huge difference for a company, because it helps create a very strong bond, especially during difficult times with the communities and also amongst ourselves.
The second key learning was as leaders we have to be very comfortable with uncertainty. Because things are changing and you don’t know what is going to come up and hit you when you got a call one day saying this plant is shut down because the local authorities have shut it down and therefore the supplier cannot give us this product and therefore we cannot manufacture so many cars. So how do you deal with uncertainty, how do you prepare for uncertainty, it is more about the mindset and the preparation for it.
