Anish Shah, MD, Mahindra & Mahindra, in his first interview as the chief executive of the group, said the conglomerate could apply for a banking licence. “We feel that from a governance standpoint, we will meet all the criteria,” Shah told Ketan Thakkar and Satish John.
However, the group is yet to decide whether its foray into formal banking will be through an acquisition of a private bank, or by acquiring a public sector bank.
Separately, Shah said its listed logistics company will look at acquisitions to grow but the group is yet to take a call on Concor. Shah responded to several investor concerns relating to group businesses including its truck and two-wheeler business, Tech Mahindra and Mahindra LifeSpaces, saying they are back on track. Shah said it has already exited the mass-market two-wheeler segment in India, and have shifted focus on the premium segment, while in trucking it will review its strategy.
Excerpts:
You take charge from April, a process that started a year back. Can you reflect on the transition?
We are going into this transition with a very strong foundation. We had stepped back a little on financial discipline, we got that back in place over the last year and a half, with a (prudent) capital allocation plan that takes care of weaknesses we had.
In the midst of this transition, Covid-19 created hurdles. How did you deal with it?
We saw tough times for many of our businesses, especially in the first quarter of FY-21 and then things turned around after that and many got back on track. So it has had an impact.
In every crisis, there is an opportunity that we can’t ignore and in many ways, we’ve taken advantage of this crisis to really look at our capital allocation, to look at our cost structure and really make significant changes to that to bring in the financial discipline. Being true to our purpose, many of our businesses took multiple steps to help communities in this crisis.
What is the board mandate given to you?
The legacy or purpose of Mahindra Group is to drive positive change in the lives of our communities and to enable them to rise.
The first mandate is to continue that legacy. The second is to continue to strive to be one of the most admired companies in the world by living a purpose, by delighting our customers and third is transforming our businesses.
The one that we are adding or rather changing the tonality is around delighting our customers. This is about what I would call going from good to great. We’ve always been very good with our customers but as the world changes rapidly as technology comes in, customer expectations also have changed or are changing. Delivering a product and how do we take that to the next level and really put in the processes that delight them. That’s sort of one step up from that continuity.
The third part is around transforming our businesses, whether it is our core businesses with innovation, whether it is our growth gems and scaling them up or delivering new-age platforms. And that becomes critical for the survival of the businesses in some cases, critical for the growth of the businesses in other cases. And that is what will drive investor value creation. So those are the three aspects of the mandate that I would have like.
If COVID hadn’t happened, would some of your decisions be different? For instance, one is the Mahindra Ford JV and SsangYong?
COVID was clearly a significant contributor to both. But if you were to look at the financial discipline that the group has had over many years, purely from the lens of that financial discipline, I’m not sure whether our decision would have changed. With SsangYong, it was more around what is the investment required, what are the returns, what will be the returns over time and many of our investors have been telling us even prior to COVID that we need to look at this very closely. So in a way, we were listening to investors as well as part of that decision-making process. Ford, also it did play a role, but there I think it was a question also of are the objectives in a JV fully aligned? First, in any JV it’s very important to have a very clear objective and then we need to be able to monitor how can we meet that objective for both partners. And if that objective is not fully aligned for both partners, then it’s better not to get into the JV in the first instance then get into it and then find out it’s not aligned. And here we found that there was some element where it was not fully aligned, so it’s better to stay friends. You know before getting into something and then finding out that things aren’t working.
Investors have given a thumbs up on your focus for capital allocation. And there is an increasing clamour among investors to diversified co.s to hive off businesses and make it sharpy focussed? For Mahindras you have tractors which is a different segment?
There is a fair amount of synergy both auto and farm businesses – scale benefit coming from common sourcing – both businesses have the ability to share technology across and hence margins for both auto and the farm is very good versus the industry.
However, we see a lot of untapped synergy benefits across many of our group companies, and that’s part of what we want them to work together, help them get into white spaces – create new edge platforms with multiple group companies invested there.
Take rural India as an example. Mahindra has the best presence in rural India as compared to anyone else in the private sector. We have multiple group entities in the rural sector- tractor business, financial services business, our agribusiness, and can we create a new age platform for farmers that gives the best of all these businesses together.
Those are things that we’re going to look at in terms of how we do transform. So we feel that the synergies exist. We need to be able to leverage that in a much better way, and if we can, if we can demonstrate that, then investors will value it.
The one aspect that investors have talked about is the focus, we’ve already addressed it and we said that we will maintain that fiscal discipline. We have taken a number of actions on capital allocation and we’re going to continue to stay vigilant on that front. And you’re right that investors have rewarded us for that. They have seen those benefits and therefore the next step for us now is to look at the synergies and be able to drive growth with that, and if we can drive growth with that, then investors would continue to reward us. And if we feel that we cannot use those synergies, then we will have to keep options open in terms of saying how do we create further value for investors.
What are your plans for Mahindra Finance? Would you look at converting it into a bank and look for a licence?
Yes, we will look at a banking license. We feel that from a governance standpoint, we will meet all the criteria that are laid out for us. The Mahindra Group does not borrow from Mahindra Finance today. If anything, we actually lend to Mahindra Finance sometimes when required and we put in the capital earlier this year as well. So from a governance standpoint, we’re very clear that we would meet all the standards.
Is Mahindra becoming more inward-looking with intensifying competition or you do have a global ambition?
We have large global ambition and it starts with having a very strong set of products. So, the genesis of the Ford JV was to further the global imprint. If it were focused only in India then we would look at it slightly differently as we have. And it starts with a set of products that are very strong and can be sold outside. What we’re looking at right now is being able to develop that on the electric side.
I would look at our Automobili Pininfarina business because it has developed what would arguably be one of the best electric cars in the world and using the technology there. That’s the path to develop a very strong set of products in India and then be able to take them around the world. If the question is, are we going to make global acquisitions of other companies, the answer is no. Are we going to look at the technology that helps us build better vehicles in India and partnerships that help us go global as a result of that, the answer is yes.
Your plan of investing in EVs and capex for mid-term
The mid-term capital allocation plan has been revised upwards, so we’ve talked about 9000 crores over the next three-year cycle in auto. That Rs 9000 crore holds the same, but that 9000 has some component of EV’s and that we’re going to enhance by another 3000 crores. So what we were going to put in the Ford joint venture, we’re going to put in EV’s now.
What we will look for is partnerships from a technology standpoint, from a market access standpoint, we have been talking about an MOU that we signed with an Israeli company for EV for smaller commercial vehicles, a company called REE and we will seek other partnerships as well.
Mahindra’s US market caters to a niche end of the market. What’s the future?
We have pulled back on that. We had looked at the US Postal Service contract, the plan was to invest over half a billion dollars for that. As part of capital allocation efforts, we said, what did not fall under the category that would give us 18% return consistently, and therefore we decided not to do it. So at this point, we’re going to stay niche in the US. The Roxor product has been well accepted by folks and we’re going to use that to further enhance the Mahindra brand there. But in terms of expanding further in the US, it comes back to what I said earlier, we need a very strong set of products in India.
As we can develop them in India then we can take them around the world. So, we’re going to do that in a measured way in a way that we can start with the strength in our product and then take that around. And if we need to get a partnership for that we will look at it.
But moving into North America will have to be something that has to be done very carefully in a very planned manner, as said, we have global ambitions and we will plan for it. But it will start with setting with having world-class products in India first.
Mahindra’s two businesses – the truck business the CV space and the two-wheeler business. When do you think it could meet the scale or size that you want, or are you ready to take a hard call?
Our investors always asked us exactly these questions for these two businesses and we looked at them very closely in this last year of our capital allocation exercise. With regards to the two-wheeler business, let me clarify that first. The mass market two-wheeler in India, we will exit it, we have no plans to re-enter.
We have Peugeot Motorcycle that is a luxury or high-end two-wheeler business which is in Europe, China and Southeast Asia and we have CLPL or which is Classic Legends which focuses on Java, Yezdi, BSA bikes and which is again in the Ultra Luxury segment and therefore niche play. Classic Legends actually is a business that is seeing lot of demand. The new model of Java, the excitement of the BSA which is being launched in the UK, is very high at this point in time and that’s a business that will grow rapidly.
Peugeot Motors, has come under greater scrutiny. This business is very close to cash break-even. It would have happened this year had it not been for COVID. But that’s something that will happen pretty soon, so that takes away a lot of concerns around burning cash, but what it does not take away are the concerns around the path to 18% ROE. And, as we evaluated it, what we saw was, one it has a very strong electric portfolio, and it can really take a leadership role in electric two-wheelers in Europe.
It has launched an electric bike already, there are a couple more in the portfolio. And beyond that, what we’re seeing in Europe is greater demand for two-wheelers, we’ve seen that in China as well, we see that in Southeast Asia, so we feel that this business is now about execution and with the electric portfolio, it can become a very strong business for us.
On trucks, we need to do a lot more work. This is one where we’ve taken a call that we want to stay in the business, we feel that we can turn it around. It is taking cash right now. It is a trend overall, but we’re at the low end of the cycle. This is a cyclical industry and we are the starting point of an upcycle on trucks and as we see that cycle going up, the benefit for that we see is that our products are taken very well in the market. We’re also in a position where we’ve got a 5% share in the industry. We can play a role of disruption. So, can we look at hydrogen, can we look at electricity and can we look at other aspects where we can disrupt the industry. As we ride the upcycle, that’s what we’re going to look at over the next two or three years. So if we can do that, then we will build a very strong business. So, that’s sort of the overall view on our truck business.
Investors wonder whether it makes sense in the commercial capital to have automotive manufacturing unit. So, do you plan to continue operating a manufacturing unit in Kandivali?
Our focus is always first for our employees and associates and that’s the lens we look at it. The lens around a purely financial view comes much later. And that’s the reason why we have stayed in Kandivali. We see a lot of benefits in doing that as well, so we will continue to evaluate it as we go on, but today I don’t have an answer for you because it’s not on the radar right now.
What’s your view on Mahindra Logistics? There are acquisition opportunities in the market place such as Concor, but do you have an appetite for it?
We’re very bullish on logistics. It’s an industry that has a lot of potential and we feel that our business is well-positioned in the industry. We will look at acquisitions. At this point, I can’t tell you whether Concor, in particular, is exciting for us or not. I do know is that the team is looking at all possible options today.
There was an exchange notice where you mentioned about attritions and all that. How does it compare with a normal year?
So the numbers are actually very small. The reason we put that exchange notice was it was starting to take a life of its own and for us our purpose is around caring for our associates and we did not want our associates to feel that something is changing with regard to that purpose, especially in a year of transition.
We wanted to send the message that our purpose remains as strong as ever and therefore what we saw there was a very small set of numbers. It’s basically 48 people and whether the 48 was 28 last year or 38, I don’t have the exact numbers around that, but it’s never been very high. Even there we’ve done a lot to try and give folks alternate roles to keep them longer to give them a lookout period, find other roles for them in the group, so all those activities are underway.
Our objective is to really stay away from layoffs. Performance actions will continue every year. I mean we have to be a performance-oriented business, that’s part of running a business and that will continue. Sometimes someone’s not the right fit for the culture, not the right fit for a particular role. And if we can’t find the right tool internally, they will look for a role externally. So that’s on performance actions. Yeah, but beyond that, on layoffs, our approach is to absolutely minimize them only when absolutely required, and also in very, very small numbers.
What’s your vision for Mahindra Holidays?
Mahindra Holidays is a very strong business but needs to grow much faster. The positive point in that business is anyone who’s gone to our resorts comes back liking it.
Sometimes getting to a Holiday is a little difficult from the standpoint of lack of rooms.
So therefore what we’re looking at is how we can expand that business significantly because the core is working very well. The way to deal with not getting the bookings is to have more rooms or more resorts. If you have more resorts, it’s easier to get more rooms. The solution to that is growth and expansion and therefore we want to grow that business. The experience is part of that business is working very well and therefore the focus and effort there right now is on the core. And how can we grow at a much faster pace than what we’ve grown in the past?
Do you agree that Mahindra Lifespaces has underperformed?
On the Lifespaces, we underperformed in the last few years. And that’s something that you know is apparent everywhere, so I’m not going to sugar-coat that. We have a team that is very committed today. We’ve gone through a very detailed strategic exercise on areas of focus on the path forward. We’ve seen some good successes in the recent past and the business now feels a lot more confident in being able to get back to a strong growth trajectory and to be able to scale up and we need to be on a much faster trajectory. So Lifespaces will need more work over the next few years. Holidays has done all the work in terms of the customer part. It just needs to scale.
Will both these businesses need capital?
So at this point, neither of them need capital. Holidays has close to 1000 crore rupee in cash, so it has got a very good base to start with and also the model of growth we’re looking at will have some elements of asset-light structures and therefore will require less capital because we see various investors coming in also eager to invest in Holidays take the property aspects of it, and get annual returns for it. So the business model will not need a lot of cash. Life spaces as well in the short run it will not. Over time it may need a little more, but it will have to demonstrate that it can meet capital allocation norms. So capital allocation norms and financial discipline will continue to stay, but we feel reasonably confident right now that both these businesses should be able to meet them and should be able to grow.
What’s your view on Mahindra Logistics? There are acquisition opportunities in the market place such as Concor, but do you have an appetite for it?
We’re very bullish on logistics. It’s an industry that has a lot of potential and we feel that our business is well-positioned in the industry. We do want to grow there. The answer to your question is yes, we will look at acquisitions.
We will look at being prudent on the acquisitions to make sure it makes sense for us, so we would not acquire for the sake of size. But we would acquire for the sake of does it makes sense for us to build that business in the right way? It’s okay for us to move slightly slower and building the business. There’s a lot of growth potential there, so the acquisition has to be done in a very careful manner. But yes, we are open to acquisitions.
We’re looking at all acquisition opportunities right now, there’s a slate of things that we’re looking at, so I would not rule anything out as yet. At this point, I can’t tell you whether Concor in particular is exciting for us or not. I haven’t got into that level of detail as yet, but what I do know is that the team is looking at all possible options today, and we would prefer to be proactive in terms of saying here’s what we want rather than reactive and saying, here’s what’s available and should we take it or not.
So at this point in time, we’re looking more at what is a landscape, how should we grow, what companies would benefit us in terms of an acquisition if we were to grow in a certain way and then proactively identify targets, rather than looking just at something that’s there.
Under Anand Mahindra a lot of businesses were incubated. Do you see any companies coming up for listing where it has acquired size and scale?
That’s where we see a lot of our growth gems, we will go up for listing. The rural housing finance will likely be one of the early ones. Accelo is another company that we would look at listing in a certain time period. We got our Agri set of businesses that have a lot of potentials, have the reasonable size right now.
So at some point, we will be looking at listing on that front. So each of our ten growth gems has the potential for listing. Some may be in two to five years, some maybe in five to seven years, and some may be slightly beyond that as well, but the answer is yes, that’s really been an engine of value creation for us, and that’s an engine of value creation that we will continue to tap into.
I would not expect anything in the first two years, but I would look at that in the two to five-year time frame because we need to build them to a certain scale also where it makes sense for us to go for a listing. So for us as a long term player, we’re not looking at short term actions in that sense, we want to build that business well have it ready, have it be robust and then go for a listing. So two years I would rule out, I would really say in the two to five-year time frame is what we would look at.
