Five ‘Gems of Growth’ can be listed in 4 years: Mahindra and Mahindra’s Anish Shah | Jobs Vox


“Today, if we can win (in the SUV segment) in India in such a big way with all the global companies present here, then why not in the global market?” “We have a lot of optimism based on what we’ve seen over the last few years,” Shah said in an interview. M&M is now in investment mode after receiving tough calls to exit several businesses over the past two years. “All our businesses are now on a strong foundation,” Shah said in a casual interview. Modified excerpts:

For setting up EV plants, what tipped the scales in favor in Maharashtra?

We got the government to support us with incentives. It honestly made a significant difference. So, from that perspective, the plan is set. Investment from 10,000 kroner is more than eight years.

How soon will it appear?

We haven’t released any timelines yet, and this is kind of a stepping stone as to where that will be. And then we’ll start looking at production timelines because some electric vehicles can also be produced in existing factories. So those are the things we’ll be announcing over the next few months when we have more clarity.

Will you consider installing additional production capacity for M&M’s conventional fuel vehicles?

We are doubling the capacity for ICE engines. Last year we closed at 29,000 SUV engines. This year we are closing at 39,000 engines, and next year we are closing at 49,000 engines.

Do you feel a change in demand in rural markets?

So we haven’t seen much change. It is more likely because the products we have and the popularity of our products are great. Our monthly bookings are still very high. You have seen the success of the XUV 700 and the new Scorpio. So the demand is very high, despite the fact that we had longer waiting times than we would have liked for our customers.

So the demand hasn’t affected us yet. The feeling we have in the market is that we may be looking at some slowdown going forward, but I think a lot will depend on the level of demand that continues. And much will depend on how the global slowdown affects us as well. We are increasing capacity, so if we were worried about a slowdown, we wouldn’t be increasing capacity now.

You planned the group’s plans even before you took over. Are you planning any mid-course corrections?

All our businesses today are on a very solid foundation. If I go back to the last two and a half years, we first talked about capital allocation. We have seen the results. We set a target of 18% RoE (Return on Equity) and achieved it well ahead of time. So that’s not something we’re concerned about. We can be at 17-18-19% RoE year on year, based on the investments we make in different areas. But at least we showed we can get there. We then discussed growth in our core businesses. And we’ve taken some pretty bold steps in the automotive industry for more products, and on the farm side we’ve increased tractor capacity. If you look at Mahindra Finance, it is on a very strong turnaround path. The Tech Mahindra has a very strong tailwind. So the underlying businesses have grown very well and we’ve talked about our “growth gems,” which are businesses that will reach a billion dollar market cap. And there we again saw good success. External investors also came. So on all those fronts things are moving better and faster than we expected.

So on your ‘growth gems’, would you expect any list to happen?

So there are three listed for our growth gems. Five of them are not listed, and we expect them to go to IPO. We talked about three to five years a year ago, so the next two to four years is the timeframe we would have to guide.

Can you elaborate on the plan for Mahindra Susten?

We want Susten to reach a capacity of 7 gigawatts (GW). We are now at 1.6 GV and plan to achieve this in the next five years. So we will effectively be adding more than 1GV of capacity every year. We want it to be a bigger deal.

Would you consider raising funds from multiple investors for Susten and EV?

In Susten, the Ontario Teacher’s Pension Plan (OTPP) took a 30% stake at the parent level and committed 4,500 crowns. We will post an invitation (in Susten). The call structure requires five investors. So that will happen as we go forward. On the electric vehicle front, we will be looking for another investor. Right now, our EV subsidiary, British International Investment (BII), has come in with roughly a 2.7 to 4.7% stake. We kept the majority with us, and maybe we will have another investor. It is more about the value that they (investors) add, and a little less about the capital itself, because right now we are generating capital from our companies.

Will you be looking at cars, the missing piece in your portfolio?

In the short term, the answer is no. We are focused on the SUV segment. We once again took the number one position in the SUV segment. There is still a lot of room for growth in the SUV segment. It is the fastest growing segment in India. We are focused on what we call authentic SUVs. Our approach is to continue to develop SUVs by introducing five electric SUV models on a native electric platform. At some point in the future, if it makes sense, we’ll look at (cars), but we don’t have any plans right now.

How is your partnership with Volkswagen progressing? Will the two companies expand the scope of the partnership in the future?

It is progressing very well and is a key element of our EV strategy. As we work together, we see all the signs that he is progressing further and developing more and more over time. I’m sure there will be more things we can do together in the future.

Would that result in, say, an equity investment on their part?

At the moment there was no discussion on that plan. It’s more about components, batteries and motors. It might be sharing a platform at some point, but we haven’t discussed it beyond that.

Anand Mahindra has often referred to the group as a federation, but with it comes the challenge of capital allocation. How do you solve it?

We are in a much better position. The Big Four are growing and creating capital. So we’re getting a lot more capital back right now. Last quarter we concluded at more than 12,000 crowns in cash. So, for us, the lack of capital is not a problem as long as the companies are working. Financial discipline is something that is most important, and we have to make sure that even though we have a lot of excess capital right now, we are deploying it in the right way and returning a fair amount to shareholders, so that is part of the promise that we have made.

Another thing that Mr. Mahindra has said in the past is that if new businesses fail, the group can cap them at some point. Maybe even leaving the company. Are there tough decisions to be made on this matter?

We got a lot of those tough calls. SsangYong was the first, followed by American two-wheeler company GenZe and GippsAero (aircraft manufacturer). Even the First Choice Services business has been sold to the TVS group, while we would like to develop First Choice Wheels. So yes, we were getting tough calls.

Are you considering a heavy truck business?

So the feedback we are getting from the market is very positive. It’s not at the scale we want it to be, so it actually has to grow much faster, and our focus right now is on driving that growth. We can have a very successful business set. It’s going well, and the industry has turned around, which helps us.

The Indian government is talking about confidence and is seen encouraging domestic business houses to enter areas that currently attract huge imports, such as solar panels and semiconductors. Are you thinking about investing in these sectors?

That is why we are looking at a partnership with Volkswagen for batteries. At some point we will look to make it in India. But we’re actually looking at a much broader topic. For us, India can be a hub for car manufacturing. Made in India and sold to the world. Today, if we can win in India in such a big way with all the global companies present here, then why not win globally. Make in India has a much bigger meaning when it comes to creating a powerful automobile industry in India. The one who covers the world. We have a lot of optimism based on what we’ve seen over the last few years.

You mentioned global markets, so how are you currently positioned in exports?

We have very good markets all over the world. In India, for our current products, we have this long waiting time. So we actually reduced exports a little bit. We can export much more. Our teams in those markets are waiting to receive more products from us. So that’s where the focus is. But with the products we have, we see great potential for export. We move very well on tractors. Business in the US is going very well. The acquisition we made in Japan gives us technology for India and for the US.

So your immediate priority will be to grow existing businesses?

We will continue to look at areas where we feel we can add value. Our initial focus was on the cleanup part and making the tough decisions. After that was done, we turned to growth. Now it will increase our business.

So, are you happy with the progress at Tech Mahindra?

The team did well on multiple fronts. One gets big bills. Entry into new industries. While Tech Mahindra is very strong in telecom, it has branched out into financial services, healthcare and manufacturing. The only area where we still need more work is on the margin front because (Tech Mahindra’s) margins are lower than the rest of the industry.

But at the same time, if you look, Larsen and Toubro came from behind, maybe because of the MindTree acquisition, but they overtook Tech Mahindra. Tech Mahindra also made acquisitions but they did not work out well.

Therefore, the old procurements did not work well. We learned from there, and the next round of acquisitions is actually working well. Yes, there will be others who get more from time to time, but it’s for us to make sure we’re on the right track. We are in the right markets and adding value to customers who have that discipline in acquisitions, and that will help us create value and grow.

How are gross margins faring for the main businesses at M&M? Is it on target?

So we set a target of 300 basis points higher in the last quarter for our automotive business. We have already reached 240 bases. We still have time to achieve this. There were a number of factors that affected margins in the auto and farm segments. Commodity prices were one of them. In cars, it’s been more about new products, so we’ll usually have a slightly lower margin at launch, and as these new products become popular, then we see our margins increase.

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