New Delhi: Anand Mahindra, vice-chairman and managing director of Mahindra & Mahindra Ltd, India’s largest utility vehicle and tractor maker, has been in the news this year as he acquired Punjab Tractors Ltd and signed a deal with Renault SA and Nissan Motor Co. to build a car factory. He’s also boosting his sports utility vehicle line-up by introducing new vehicles next year, while expanding into other markets such as South Africa and South America. In an interview with Mint, Mahindra touched upon a variety of topics, including his decision to stay away from the small car segment and how his group businesses complement each other. Edited excerpts:
A lot of people are betting on the Indian car market and its potential. What sort of ambitions do you have in this market?
For us, the big intent coming out of our results was our market share gains. Our sports utility vehicle (SUV) market share has moved up to 52%. We have actually gained 3-4% points in what can certainly not be called an uncompetitive market here. When you get everybody and his uncle in the market, the gain in market share is satisfying to say the least.
We are very clear that we want to become a globally recognized brand in the SUV segment, we have aimed to earn our spurs globally as a specialty brand and therefore one would ask why trucks, why Logan, why the other (ventures)?
Specialty players will always survive. The market will always be made up of niche players and large-scale players. The argument most people use against niche is scale. We have asked the question, what do you mean by scale? Scale could be number of areas, most obviously in manufacturing, scale in procurement, scale in research and development. There aren’t that many barriers to scale manufacturing plants; where you needed 500,000 units today, you need 50,000 units tosurvive.
What we are trying to fashion in the automotive business is to use an analogy of an engine—think of pistons as our businesses and think of the crankcase as the horizontals.
The verticals are the auto business and tractor business, where the competencies are very similar. Truck business, which was a spin-off, and Mahindra Renault as a fourth vertical. Now when you knit all these together down below or what are the horizontals, are sometimes common factories. It is a model that has worked for us so far. I believe it’s an excellent model that takes the maximum advantage of a conglomerate structure.
So if you look at the piston of the automotive sector, we have a very clear focus on the specialty UV company. We want to be the next Land Rover. Why can’t an Indian company be the next Land Rover? Clearly we’ll have to build our brand.
So the domestic focus is going to be to continue our domination of the SUV business, to make tremendous share gains in the LCV business. The passenger car business gives us access to the Renault procurement system and Renault engineering as well.
You said you want to be the next Land Rover? How do you plan to achieve this with just the brands you have?
Do we have a pipeline for this? Yes. Do we have them on the road on view? No. What you see is just the Scorpio. Next year, we’ll begin to see the Ingenio which is a utility vehicle again. You have other products which I can’t talk about right now. Is it a Land Rover portfolio we are talking about? Of course not.
But I think we’ve demonstrated enough success that we’ll be able to get there.
Would acquisitions be a part of this strategy?
Acquisitions normally in the tractor business have been a part of our strategy because in the tractor biz, our goal is to be the largest player in the world. We are the fourth largest this year. When we look at that, acquisitions for scale become a conventional or reflective part of our strategy.
When you are trying to be a specialty player, M&As don’t necessarily have to be a part of strategy. Look at our auto business. The global spread has come through partnerships and distributors. In South Africa we have been successful, we just launched in Chile of all places, Brazil next month.
But the biggest market for SUVs is North America, isn’t it?
North America is an aspiration we’ve talked about. There is a target date, we have intentionally been fuzzy about the kind of product, the kind of distribution, timing and launch.
You seem to have shied away from getting into the low-cost, small-car project with Renault though you have an alliance going with them. Why is that?
Doing the Logan and assembling the product is very different from going ground up and creating a new passenger car. That would be a little bit of a compromise to what I told you earlier. So, when you do the Logan, you get scale on the horizontal and you get the scale on distribution, and our distributors benefit. It’s very asset light and inventory is very little. We are using existing plants.
It’s an existing product and proven itself to the world. It’s a very different ball game from diverting huge resources into a segment, which in my opinion, requires unadulterated focus to make it work and a business which has a low tolerance for error.
The acquisition of Punjab Tractors has not been really helping your earnings, isn’t it?
Frankly, what we have done is fixing up the place. Industry is measured on billing and not on retail. You look at it as basic house maintenance activity. But the markets are looking up. There is a very robust outlook for agriculture. Commodity prices have gone up. Food prices have gone up. Minimum support prices have gone up. The tractor industry has undergone one of its normal down cycles in the past one and a half years. It’s a cyclical industry. But we think it’s in line for a upswing. So, with 40% of the market currently and if you combine two of the top three brands in the country, if there is an up tick, we are obviously well poised to take advantage of it.