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Pawan Goenka, executive director of Mahindra and Mahindra. Photo: Hemant Mishra/Mint
Pawan Goenka, executive director of Mahindra and Mahindra. Photo: Hemant Mishra/Mint

Can Mahindra survive its own ambition?

It is one thing to do too many things. Another to do them all well. 2015 will be the year of reckoning for M&M

Mumbai: It was a very difficult year for us," says Pawan Goenka, 60, executive director of Mahindra and Mahindra Ltd (M&M) and group president (auto and farm business). “Perhaps the most difficult I have ever seen."

That’s a rare, candid submission of the year that’s gone by and its impact by a man who has spent 22 years at the company.

That M&M is in a funk. A lot of it of its own making, and with little help from the growing competition in the automobile industry and a slowdown in the Indian economy.

In 2014-15, M&M two-wheelers sold 165,344 units. This is what market leader Hero MotoCorp. Ltd sold in 10 days. Even India Yamaha Motor Pvt. Ltd, the fifth-largest in the pecking order, sold close to 3.5 times more—565,273 units. M&M’s two-wheeler business registered a loss of 459.29 crore, almost doubling its losses of 263.86 crore in 2013-14.

In the truck business, M&M sold 3,499 units. That’s a paltry number, considering that M&M has been in the business of selling trucks for about a decade. Daimler India Commercial Vehicles Pvt. Ltd, which entered the Indian market in February 2011, sold about 11,000 units in calendar year 2014.

M&M’s truck and bus business incurred a loss of 370 crore in 2011-2012 (last available number), against 240 crore a year before. M&M merged the entity with the parent company after concluding the buyout of Navistar International Corp.’s stake in the joint venture in February 2013.

In its core utility vehicles (UV) business, M&M’s market share sank to the lowest in seven years at 37.4% in 2014-15. Sales dropped 5.75% to 206,837 units from 219,421 units a year ago. This was in a year when the UV market grew by 5.2% to 553,699 units.

In its lone passenger car business, where the company sells just two models, the Verito sedan and Verito Vibe hatchback, the company sold 3,184 units in 2014-15 against 9,734 units a year ago.

In its much-talked about Reva electric car business, the company sold about 350 odd units.

In the tractors business, the company’s total sales stood at 234,023 units as against 267,635 units in the previous fiscal, down 13%. Volumes were the lowest in three years.

Spreading itself too thin?

It is a question that has been asked again. And again. But now, when the numbers stack up, Goenka understands that the above report card isn’t one to be proud of. That all of it, put together, is a lot to chew for one company.

Or as a senior executive in the auto industry, with firm views on focus and diversification, explains, speaking on condition of anonymity. “Like many others, they can very much be a high Ebitda margin (indicator of a company’s financial performance) company. But whatever money they make on UVs, they lose some on trucks and some on two-wheelers. The hypothesis, based on if-a-Toyota-and-Honda-can-do-it-why-can’t-I, is flawed. Fifty years back, you could be into 10 different segments and be successful in all. Not anymore."

Ebitda refers to earnings before interest, taxes, depreciation, and amortization.

At M&M’s office in Kandivali, a western suburb of Mumbai, early in the afternoon on 2 April, Goenka looks tired. He’s been travelling a lot, across China, South Korea and the US, countries where M&M has interests. Now, back in his office, he agrees that there is merit in the question—is M&M spreading itself too thin? And also perhaps, that people who are asking these questions have a point to make. After all, M&M is in two-wheelers, three-wheelers, trucks, sports utility vehicles (SUVs), light commercial vehicles (LCVs), tractors, and now agriculture machinery. So, where does it stop and is it possible for one team to handle all of this?

“So, those are very valid questions," says Goenka. “Anybody from outside and even people inside would ask that question; you do not have a focused strategy. So that is one way of looking at it. The other way is whether we are putting the right future bets. And we have taken a view that, let us try and spread our bets into many areas. We do not claim that everything will eventually succeed, but if most of our bets succeed, then we would be ahead in the game."

As Goenka sees it, M&M has only got into businesses which are extensions of its core business and where there is room for one more player. It is another matter altogether that, in some cases, it has taken longer to find room in that crowded room. Or worse, the room has become more crowded since.

“You see, there are no easy businesses anymore," he says. “In the manufacturing business, there are no white spaces available. Wherever you go, there are well-established players, so we can remain where we are strong and say, okay, I am happy doing it, growing in an incremental fashion. Or we can say, look, we are not happy doing that... we’re going to come in, challenge the leaders, struggle in some cases, win in other cases... and that is the strategy that we have chosen."

Clearly, it is a strategy that has had mixed results. While M&M has grown in its agriculture implements business, almost 10 times in four years, it has struggled badly in two-wheelers, trucks and buses and passenger vehicles. The decline in its mainstay SUV and tractors business has only added to its woes. But Goenka isn’t losing heart. Not yet. He says that 2015 will be the moment of reckoning for M&M.

He has set himself a target, perhaps one of the most ambitious in the automobile business in the country— to corner at least 6-8% market share each in trucks and two-wheelers to justify existence in the respective businesses.

“Everywhere (in all the automobile segments M&M has its presence) this is what I am looking at," he says, “6% to 8% market share is what we need to target to be meaningful."

The targets are steep. In its trucks and buses business, Goenka wants to double the volume. As he does in two wheelers. In its SUV business, it entails gaining back about 8-10% market share. It is the same for the tractors business, get the volumes back up, at least by 10%. “So all four... tractor, automotive, truck, two-wheeler... are very critical year for us," he adds.

To be able to do this, Goenka has to fire on all cylinders—launch new models, sustain sales of existing ones and build the brand. The question is: can it be done? After all, M&M is in segments where competition is well-entrenched and where there is little scope of product differentiation.

The plan

Simple. Step 1: Launch products. Across all businesses. At least one product every month. Step 2: Get costs under control by commonization of parts. Across businesses. Across models. Step 3: Hope it all works out, according to plan.

In the trucks business, things look a bit difficult. That’s because a lot has changed in the truck market over the past decade, since the critical long-term bets the Anand Mahindra-led M&M group took in 2005. Competition intensified with the the Eicher-Volvo alliance in 2010 and the entry of BharatBenz in 2011. Though still largely dominated by the big two, Tata Motors Ltd and Ashok Leyland Ltd, which together sell eight out of 10 trucks, the entry of multinational firms, albeit in a small way, has altered the competitive landscape.

Then again, a steep decline in the market for almost two consecutive years—2012-13 to mid 2013-14—made the climb all the more uphill for newer entrants like M&M.

“In a slow market, the propensity to take risks comes down and people prefer to go with the tried and tested," says Nalin Mehta, chief executive for the truck and bus business at the company. But on the back of a rebound in the market which kicked in last June, and new model launches, M&M plans to double sales of heavy-duty trucks to close to 7,000 units by end of 2015-16. Mehta says the company utilized the downturn to put its house in order and will launch trucks in the 8-16 tonne category over the next six months. It currently has a presence in the 16-49 tonne range only.

“Three years are not over yet," says Goenka, referring to the time-frame sought from M&M’s board to turn around the heavy-duty truck business. “We are at a juncture in the truck business where we are ready to take off." To prepare for the rollout, the company has grown its sales and service touch-points. From 1,943 in 2013-14 to around 2,800 in 2014-15. And truckers have taken notice. “They have a fair chance in the truck business," said a top official at a transport and logistic firm adding, “their efforts are a lot more pronounced". This person did not want to be identified.

It is a different story altogether, though, in the two-wheeler business.

Mahindra entered the highly competitive business in 2008 after it acquired Kinetic Motor Co. Seven years since then, the monthly sales are nothing to write home about. It currently sells the Gusto scooter and Centuro motorcycle in the two-wheeler market.

So what went wrong?

“We probably made a strategic error, on not launching our own products sooner," says Goenka, admitting that while Gusto and Centuro have been relatively successful and some of the features have been talking points, current volumes are “not something that one can make a two-wheeler business on". Even as the company has been deriving solace from a better conversion ratio, building the brand has been one of the biggest challenges.

“If consumers don’t know that we exist," he says, “then we don’t get enough people coming and looking at our bikes and scooters, and therefore we cannot sell." Goenka says that the way to get around it is to increase the brand’s visibility. So, not only will M&M launch new models, which includes the Mojo, a 300cc motorcycle, by the end of this month and a new variant of Gusto later this year, plans are underway to step up the marketing effort as well. Tapping into overseas markets, including South Asia and Africa, will also be a part of scaling up volume.

Rajesh Jejurikar, president and chief executive of the farm equipment and two-wheelers business, is not oblivious to the challenge. “I don’t see us cornering 5-6% of the market share for at least three years," he says.

There are detractors who think it is best that M&M exit the two-wheeler business. For good. “They should be focusing more on their core business," says Hormazd Sorabjee, editor at Autocar India magazine. “And roll out models at a faster pace rather than getting distracted by something like a two-wheeler. Being a highly nuanced category, it’s better left to rivals who understand the business much better."

It is not like Goenka doesn’t know that his core business of SUVs needs more attention. There, M&M’s market share sank to 37.4% in FY15. This was in a year when the utility vehicles market grew by 5.2% to 553,699 units.

In the absence of a compact SUV in its line-up, M&M has ceded market share to rivals, including Honda Cars India Ltd’s Mobilio, Toyota Kirloskar Motor Pvt. Ltd’s Innova, Ford India Pvt. Ltd’s EcoSport, Nissan Motors India Pvt. Ltd’s Terrano and Maruti Suzuki India Ltd’s Ertiga. Now, in a bid to recoup some of the ground, M&M plans to launch a flurry of new models over the next 10 months, starting later this month. These include new compact UVs, refreshes and new variants of the existing models.

The launches have come a tad bit late, said a dealer, declining to be identified. “They are late at least by a year," he says. With rivals Maruti, Honda, Hyundai Motor India Ltd and Renault India Pvt. Ltd looking to strengthen their presence with new models, this would have helped if it happened last year, this person added. Earlier this month, M&M invited some of its principal dealers to its facility in Chakan to showcase its models. “We have all returned pretty impressed with the future line-up, and hoping that they claw back the share they have lost," adds the dealer.

Lack of new models wasn’t the only problem. Absence of gasoline-powertrain models, which has seen demand rebound lately with a reduction in the price gap between diesel and petrol, was yet another reason for the company losing out to rivals. M&M, therefore, has developed a new range of petrol engines that will power its upcoming models.

That’s not all. To bring down the cost of manufacturing, over the past year or so, M&M has been working on increasing the number of parts that can be shared among models. “We are not as good as many others, but it is very high on our priority of things," says Goenka. Of keen interest to M&M is how Japanese rivals Honda and Toyota have been able to work on commonization of parts. Goenka says that the company’s designers have been given a clear brief and reined in to ensure that the new set of platforms that M&M launches follows the same kind of carryover components as the big guys do.

Goenka knows this is easier said than done. But it is a significant, competitive factor. “We are better than where we were five years ago, 10 years ago... but we are not where we want to be," he says. It is another matter that M&M has been a bit unlucky with this. There was one platform where M&M had planned commonization well—the Xylo platform; the Xylo, Quanto and Genio shared 75% of their parts. Except that the models flopped.

And so did M&M’s passenger vehicles foray with Verito and Vibe. Goenka says it is unfortunate that the company couldn’t make a go of it. And it is now at a stage where it is not even on top of his mind. “It had come in as a joint venture and we couldn’t sort of drop it," says Goenka, referring to Mahindra’s alliance with Renault that originally launched the cars. “That is one segment we have left out, so we shouldn’t be asked why you are leaving that segment out."

Was it a big loss? Not quite, says Goenka. Losses in the other businesses bother him, and the constant mention of it makes him a bit impatient. “The most challenging times are over... and the next 12-18 months would kind of show what is the result of that worst getting over. Okay?" he says. “If I am going to get a 10% improvement in volume in two-wheeler and truck, then we are in trouble. Okay? That means whatever we thought we have done, we have not succeeded. If I am going to double the volume in two-wheeler and truck, then we are in business. And that is really what it comes down to. So, that is the challenge that we have this year. And that is an important thing."

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