When 52-year old Anish Shah took over the reins as managing director & chief executive officer of Mahindra & Mahindra (M&M) in April 2021, the company was saddled with a large number of non-profitable businesses. For example: Peugeot Motorcycles (PMTC), sports utility vehicles maker SsangYong Motor Company, Pininfarina Engineering and GippsAero.
Roughly 20 months into his stewardship, Shah has either exited all these loss-making businesses or has reduced focus on them, besides selling stake in other troubled entities and brought investment partners into new businesses, making the company leaner and more focused in its core businesses.
Just after taking over, Carnegie Mellon-educated Shah came up with a business plan. At the centre of the plan was financial discipline — ensure an 18% return on equity (RoE) across all business units in the mid-term. All group companies were told that they will get fresh capital only if there is a strong value proposition and the ability to meet certain financial milestones that provide the right set of returns for our investors.
Shah told FE, “Our ROE commitment of 18% is on a portfolio basis. We have exited some loss-making businesses and have been able to turn around many others. As a result of these efforts, we are now confident that we can meet this threshold and have now pivoted to growth.”
Shah and his team are walking the talk. M&M has sold stakes in many other automotive and non-automotive firms such as Mahindra Susten, Mahindra CIE Automotive, Mahindra Sanyo Special Steel and Mahindra First Choice Services. And while Shah got rid of underperforming assets, he also managed to turn around M&M’s SUV market share, powered by five launches labelled ‘blockbusters’. Buyers are now willing to wait for two years to drive a M&M SUV — a vast improvement from times when they were sold at steep discounts. There have also been three launches in the three-wheeler segment and four in the farm equipment vertical.
While the impact of the new launches is visible in its market shares (market leader in electric three-wheeler and tractors) the reconditioning efforts are reflected on its balance sheet too. M&M’s reported stand-alone net profit of Rs 2,090 crore for the September quarter was boosted by its highest-ever quarterly revenue on the back of improved production.
Shah, who was earlier the chief financial officer, was faced with the challenge of ramping up production amid the worst supply chain problem ever faced by the automotive world. His biggest success as CFO was to convince the board to abort the joint venture with US giant Ford Motors in late 2020 and reroute investments for developing electric vehicles instead of making diesel and petrol-powered personal vehicles. This turned out to be a game changer for the automaker.
India’s demand for electric vehicles has shot through the roof and M&M is readying its re-entry into the segment with the launch of XUV400 in January, its first all-electric SUV. Five more such electric SUVs are planned in the coming years. British International Investment has committed over ?4000 crore capital into a new EV company created by M&M giving it a valuation of $9.1 billion
The clinical approach of Shah to clean up M&M’s balance sheet has received praise from market watchers as well. “Capital allocation improvement was entirely driven by Shah. His approach of categorising the subsidiaries into three categories and deciding if any of them is a strategic fit was good exercise,” said a Mumbai-based analyst tracking the company.
However, M&M’s vast expanse of business interests still warrant closer attention from Shah. For instance, the loss-making Classic Legends, a company that houses premium two-wheeler brands like Jawa, Yezdi and BSA, is yet to make its impact. Its volumes are just 5% of market leader Royal Enfield. But Shah is not giving up on it.
“Classic Legends occupies a distinct consumer mind space with its strong portfolio of brands including Jawa, Yezdi and BSA. While it is niche, it sees the highest profit creation in that segment of the industry. The business is progressing on the right track, and we are confident of creating long-term value,” Shah added.
“Two-third of the profit comes from selling tractors at the EBIT level for M&M. The government has also said that they will be reducing the subsidy outgo next year. The UV space remains extremely competitive especially with Maruti Suzuki getting bolder. So, we have to be slightly cautious going ahead,” said another analyst.
The target to deliver 18% ROE was set two years ago and M&M claims it has achieved it much before. The company estimates to end the current year with 20.5% ROE. But Shah is looking for more. “Our focus will also be on value creation in our Growth Gems to reach the $1 billion market cap in each of those businesses.” There are seven businesses that are specified as ‘growth gems’ by the company including Mahindra Holidays, Mahindra Lifespaces, Mahindra Logistics.