How Anish Shah has a unique chance to led by example

When the US Postal Service was in the lookout for its next generation of delivery vehicles, Mahindra & Mahindra was one of the four finalists for the $6 billion project. But last August, its north American business unit, Mahindra Automotive North America (MANA), decided not to pursue the bid as it would require the Indian conglomerate to invest around $500 million (about Rs 3,700 crore). Then MANA went ahead and cut more than half of its workforce. Five months later, Mahindra Group company Tech Mahindra pulled the plug on Pininfarina Engineering — the top-end design company it had acquired in December 2015 — after the pandemic made operations no longer viable for the Italian company that works closely with blue-blooded auto clients like Ferrari. Even the loss-making aircraft manufacturer GippsAero was shut down as was the smart electric two-wheeler, GenZe, which Anand Mahindra, once touted, would change pizza deliveries in New York, home to his two daughters. “As a group they seem to be happy being No. 5 in everything they do,” says a senior corporate banker associated with a foreign bank, who has seen the group up close for over two decades. Now, it’s up to Anish Shah, a former consultant and private equity executive who took charge as the MD and CEO of Mahindra & Mahindra on April 2, to turn things around and spring clean the Mahindra federation of companies or as the late CK Prahalad once said Fortress Mahindra. Even before he took over the reins, he had hit the ground running for over a year. “Don’t get fooled by his soft-spoken demeanour and smile,” warns a former colleague, who worked with him in the group strategy team. “He’s been dealt a tough hand and he knows that. But he knows he has shown the ability to draw the scalpel and surgically remove the flab. He has a free hand to do so.” Mahindra has already let go of 48 associates due to redundancies while 98 associates have been given six months to find a role.Anish Shah, 51 MD & CEO, M&M - APRIL 2, 2021 MD and CEO , Mahindra & Mahindra- APRIL 2020-MARCH 2021 Deputy MD & Group CFO, M&M- APRIL 2015-MARCH 2020 Group president (strategy), M&M- AUGUST 2014 Joined M&M as president (group special projects)- MAY 2009-JULY 2014 President and CEO, GE Capital India- MAY 2007-APR 2009 Head of Bank of America’s US debit products business, North Carolina- APRIL 2004-MAY 2007 Global directormortgage, GE Capital, Connecticut- DECEMBER 1998-APRIL 2004 SVP-mortgage insurance, GE Capital, North Carolina The total number (across all levels) comes to 1.3% of white-collar associates in auto and farm sectors, according to a company statement. Tech Mahindra has also reported a reduction of nearly 2,500 people in its overall headcount in the December quarter, attributing the majority of job losses to the business process services (BPS) vertical, as the use of automation increased. The churn has also seen entrenched old-timers being reassigned or rejected. VS Parthasarathy, former Group CFO who was moved to head the mobility vertical in December 2019, has left. Manoj Bhat has moved from Tech Mahindra to become the Group CFO. Relatively new hire, Amit Raje, a former Goldman Sachs banker, who was heading partnerships and alliances, has been moved to head the digital space in Mahindra Finance, while Suman Mishra will now head business transformation in the auto sector. While Mahindra has exited six businesses in recent months, many of the loss-making businesses have yet to turn around. Losses from the international subsidiaries are expected to shrink to about $41 million in the fiscal year starting April 2021 from an expected loss of $411 million last fiscal. In an exclusive interview with ET Magazine, Anish Shah says the company started this clean-up and capital allocation journey three years back. “Twowheelers, retail, GenZe, GippsAero,First Choice Services were all part of that. It’s just that we are more vocal now as we take more firm calls,” says Shah. The impact — costs have reduced drastically, and so has debt. M&M’s debt, which more than doubled in five years from Rs 37,911 crore in FY2015 to Rs 82,567 crore, has declined by 15% to Rs 70,369 crore in the first half of FY21, bringing cheer from investors.Key Manpower Changes 81889274The M&M stock has leaped 196% in the past one year compared with an 80% surge in the Nifty or a 116% jump in the Nifty Auto index. The company’s strategy of turning around a few loss-making entities and the focus on return-ratio improvement has helped re-rate its stock in the last one year, says Mitul Shah, VP, research, Reliance Securities.“Anish is the right leader for the Mahindra Group,” said Chairman Anand Mahindra, in a recent company statement, “with a complete oversight on global operations, the transformation agenda and driving strategic programmes.” Anand Mahindra retires in November 2021.Key Portfolio Decisions- AUGUST 2020: The North American unit decided not to pursue a bid to supply delivery vehicles to US Postal Service as it required an investment of $500 mn- NOVEMBER 2020: Mahindra exited the aeroplane business, GippsAero, which made a loss of Rs 3-4 bn in FY20, and the smart electric two-wheeler biz (GenZe)- DECEMBER 2020: South Korean SUV specialist SsangYong Motor Company filed for court receivership despite attempts by Mahindra to turn around operations- DECEMBER 2020: Group company Tech Mahindra pulled the plug on Pininfarina Engineering after the pandemic made operations irrelevant for the Italian company- DECEMBER 2020: Mahindra ended JV with Ford- JANUARY 2021: Group cut more than half of the workforce at its North American unit- FEBRUARY 2021: Mahindra sold its stake in First Choice Services to TVS Automobile, exiting the services businessBack to Basics Group watchers are surprised to see how ruthlessly Anish Shah is pruning the group’s global footprint and businesses that mostly have performed below par. “With Mom & Me category, it was felt we didn’t have any differentiation. In GenZe, while we were innovators, its entry was too early, and in GippsAero, the market for aeroplanes was declining significantly,” says Shah. “So, while we did give these businesses our best shot, we didn’t want to burn anymore capital in them.” Its most high-profile subsidiary — SsangYong Motor Company — is bankrupt, much like how it was when M&M acquired it in the first place in February 2011, after the group refused to recapitalise the business any further. It is in the process of getting sold. “Gaps in its product portfolio, especially petrol engines, and falling exports in key markets like Russia, Iran and Egypt and a delayed entry in the US all worked against SsangYong,” says Mahantesh Sabarad, head, retail, SBICAP Securities. 81889291The Mahindras, who could not make their vehicles stand out in the overcrowded US market, began refocusing on the domestic market only to realise that its core market was usurped by many other players. Record low SUV sales, new technology disruptions, few exciting launches ensured global rivals with deep pockets like Jeep, Kia and MG Motor drive away with market share. Thus Shah would have to re-position Mahindra in the fast-growing SUV segment. “It’s been a lost decade for Mahindra — almost undoing what the company built over the previous 10-12 years,” says VG Ramakrishnan, MD and managing partner, Avanteum Advisors. 81889310“It’s more of a valuation game now,” he adds. In 2013-14 Mahindra had a market share of 11-12% in passenger vehicles, which has fallen to 5.5%. So, while there is a huge opportunity to grow, Mahindra needs to be focussed. Over the past five-seven years, Mahindra has been playing catch-up in the fastgrowing SUV segment, as the market shifted from its area of strength (large SUVs) to compact SUVs. None of its launches in the new segment met with big success, say experts. It continues to play with its age-old products — Bolero, Scorpio and now the revamped Thar. Known for its larger SUVs, it could not compete much in the compact UV or the MPV space. “Now the company is going back to its core with its mainstream products with the recent launch of Thar and new product line-ups,” says Shah. 81889318The other focus is the growth in EV space. Mahindra recently announced a consolidation process of its EV operations into two focused verticals — last mile mobility and electric vehicle tech centre. By simplifying the structure, it can drive improvements through innovation, efficiencies and economies of scale. Similarly, even after exiting the mass-market two-wheeler space, it continues to focus on the premium segment with Peugeot Motorcycles, where it sees potential in electric two-wheelers for the European market. Having launched the iconic Jawa in its Classic Legends portfolio, the company feels it is well positioned and has even identified it as one of the growth areas among 10 potential gems. Fixing the mothership M&M is important as 55% of revenues and 30% of profits come from it. 81889325Vantage Position Being the first MD and CEO in Mahindra Group’s 24 years to have complete oversight and responsibility for the entire group’s businesses, Anish Shah has a unique opportunity to usher in change. In contrast, Pawan Goenka, the MD and CEO who retired on March 31, was overseeing only the auto and farm businesses for over two decades. The severance from SsangYong and Ford in guillotine speed was unprecedented, which led to a lot of talk among sceptics. While Mahindra suddenly decided not to invest anymore (after getting a board approval) in SsangYong from April 2020, what was surprising was that the second marriage with Ford fell apart in less than 15 months. If the group’s biggest challenge is the automotive business, other listed entities such as tech, vehicle finance, logistics, real estate and hospitality, too, need new engines of growth.Software services exporter Tech Mahindra, which is expected to benefit from 5G and cloud opportunities, saw its revenues jump 39% to Rs 36,868 crore in the past five years, while PAT jumped 33% to Rs 4,033 crore in FY20. Last December the stock reached its all-time high on the back of better margin trajectory, growth in revenue for the communication vertical and a coherent strategy to capitalise on 5G opportunities. “TechM expects multiple deals in the pipeline and is likely to convert in 1HFY22. It believes it has end-to-end offerings in the telecom space and expects competition largely from the OEMs in the 5G network space and larger peers primarily in the IT/ BPS sector,” says Rishit Parikh, analyst with Nomura. Telecom accounts for over 40% of the company’s revenue. With a string of bite-size acquisitions that has not stretched the financials, the company has managed to access competencies in next-gen areas or verticals and geographies. “After Satyam, it has refrained from billion-dollar deals though it was serious about Mphasis five years back,” says a technology-focussed investment banker who did not wish to be named. “The management allows acquired entities to operate under own brand with a fair degree of independence with scope for cost synergies. They have also increased their focus on creating and selling integrated solutions combining both in-house offerings and acquired competencies.” Light commercial vehicles and tractor sales, too, remain sufficiently resilient — a trend which is also helping non-bank lender Mahindra & Mahindra Financial Services to post profitable growth. It expects further growth in demand, following the government’s push on infrastructure and mining sectors. Going into the new fiscal, the four major trends the non-bank lender is focusing on are collection with targeted weekly and regular reviews, improved collection efficiency across geographies, repossession of assets in real stress cases and actively pursuing upgrades from borrowers with due loans. “Management is guiding to a gradual and not a rapid improvement in asset quality, given the evolving situation and that certain customer segments (school bus operators, tourist operators and cab aggregators) could take time to recover completely, although these have been showing improvement,” highlighted analysts at Morgan Stanley in their March report. Tractor volumes have actually been the saving grace for Mahindra, growing at 17% in 2020-21 at 3.54 lakh units across its two main brands, Swaraj and Mahindra. Similarly, its real estate development company Mahindra Lifespaces, which had its challenges, witnessed a broad-based demand across its projects and different price segments ranging from Rs 10 lakh to Rs 4 crore.Despite a revival in demand across these price segments, it reported a net loss in FY2020 of Rs 193 crore against a profit of Rs 108 crore in FY2011. Revenues stood at Rs 611 crore in FY20. Mahindra Logistics, which reported revenue of Rs 3,471 crore in FY20, expects to touch Rs 10,000 crore by FY26. Mahindra Holidays & Resorts is also on a Rs 1,200 crore expansion drive. The company reported net loss in FY20 at Rs 132 crore on a revenue of Rs 2,372 crore. With international travel hit badly and traditional hotel chains feeling the heat from travel portals like Airbnb, Mahindra Holidays is seeing growth from domestic leisure destinations. It has decided to put on hold plans to acquire management contracts for upscale hotels this fiscal to conserve cash. Over the next 12-18 months, the company has several upgrades and new launches lined up like the new XUV500 (4QFY21) and new Scorpio (1QFY22), and e-XUV300 (midCY21). But industry watchers say Shah, with his non-manufacturing background (unlike Pawan Goenka), could see some strategies backfire in the medium term. For the moment, though, the tough calls have found many takers. “It’s a change in strategy but not an alarming situation,” says Kaushik Madhavan, vicepresident, mobility, Frost & Sullivan. Shah came in with the turnaround task to exit loss-making businesses, says Hitesh Goel, director, research (automobiles and components), Kotak Institutional Equities. “Impairments are part of Mahindra’s efforts to take care of all issues related to its international subsidiaries. It started with tougher businesses and, hence, higher write-offs,” says Jinesh Gandhi, senior VP, Motilal Oswal Financial Services. Shah’s focused approach towards turning around subsidiary operations and the sale of significant loss-making subsidiaries should add meaningful benefits to the bottom line as well as cash flow from FY22. 81889358 81889375The Way Forward On the farm side, not only will the group look for further acquisitions, but also technology for farm implements. On the auto side, it will look for partnerships in the EV space. In Logistics, Lifespaces, Holiday and in 10 identified growth champs, wherever required, it will make acquisitions. Among these 10, many would go for an IPO in the next three years as well. “In a year or two, people will see that Mahindra’s international subsidiaries, especially with SsangYong out of the way, are value additive. Once we achieve that, we can get on to more aggressive initiatives to take the company to the next level of growth,” says a senior official who did not wish to be identified. Inorganic growth opportunities in some companies like Accelo, the auto recycling and speciality steel major, is likely to benefit from the scrappage policy. The used car business is also seeing a lot of potential as it is turning out to be a bigger market than new cars, and Bristlecone is seeing a lot of demand in supply chain management. In newer frontier ventures like healthcare, the growth will be more in the data and technology diagnostics space. Such wide-ranging changes are bound to stir things up. 81889345“Mahindra is losing its humane touch and moving more into a very performance-driven organisation,” says an insider associated with the group. But hard decisions always come at a price and for Shah the outlook is clearly on capital allocation, to further bulk up the 10 identified growth drivers (business units across mobility, clean energy, infrastructure and technology and rural and financial services) while ensuring continuity of strong performance in domestic auto and farm businesses to make a statement. They really need to make one. In 1991, Anand Mahindra confronted hostile union workers at the Kandivali plant over a rise in Diwali bonus when he was parachuted in from Mahindra Ugine Steel, another group company. He linked it to a rise in productivity during a heated fourhour negotiation with irate union leaders who eventually calmed down. Productivity is once again the buzzword as a transition is in motion.(Additional reporting by Rajesh Mascarenhas, Saloni Shukla and Anandi Chandrashekhar)

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