With the turnaround at the group’s flagship auto business firmly in place, Mahindra Group has its sights set on its next growth engines. In an interview with Deborshi Chaki, Anish Shah, MD, Mahindra Group discusses the various themes at play in each of the group’s core businesses, the net worth of which he expects to increase manifold in the course of the next few years.
When you took over you had set certain key milestones around the group’s financial performance. How would you assess yourself on those commitments?
We had talked about getting to 18% RoE across the group and at that point we had said we’ll do it in three to five years. But we got there in 18 months. We’ve also talked about 15%-20% EPS growth from FY21 and we are 3x the profits of FY21 right now. So, there has been a very strong delivery on all the commitments we have made. But more important than that, I think we’ve set all our businesses up for a very strong growth trajectory. And that gives me a lot more excitement about where the group is right now. What we have done recently is created a 5x challenge which means our businesses have to grow 5x in the next five to seven years from where they are now in terms of market capitalisation.
What were the pivots to achieve these numbers?
So the first set of levers was capital allocation and discipline. It resulted in exiting a number of businesses that were loss-making and that did not have a path to the future. It resulted in the turnaround of a certain set of businesses which had good profit potential. And it also resulted in us being able to strategically take things from certain businesses to be able to create value in other places. The first year was really focused on capital allocation and then we focused on transforming our four core businesses which are auto, farm, IT services and financial services in a manner where they can now aspire to become market leaders in their spaces by a big margin.
As a group, Mahindra has always been conservative with capital. Has there ever been a temptation to take on leverage to pursue aggressive growth?
If you go back in time – from 2002 till now – M&M has been the best performing stock in the Nifty for 21 years. And that comes with a high degree of discipline. I will call it discipline, not conservatism, because many of our targets are very bold. That discipline is important and therefore we will allocate capital only when we are certain or have a high degree of confidence that this business is going to be able to deliver what it said. And we don’t need to add leverage because as we see there are many people around the world who want to give us capital. So we have never seen in that sense a dearth of capital.
In which verticals are you looking to raise external capital through stake sales ?
Our stated approach has been for all our growth gems, we will look for the right partner. We have not done active fundraising for any of our businesses and that’s where the strength of our delivery comes in. Because we’ve had various investors talking to us and saying they want to come into these businesses, we’ve been very selective about bringing in marquee investors who can really add value with us. We will look for a few more investors for specific growth gems that we have because that helps us get external credibility and valuation. It helps us get the value that the investors will bring to grow the business and the ability for us to be able to be bolder in other things we do.
Beyond auto, which is the other business that you are most bullish on?
So today, I would say it is Mahindra Finance because there’s a lot more potential there. We are undervalued in terms of our price-to-book as compared to others and we’ve got to be able to execute much better than to be able to create that valuation. But that said, there are a number of other businesses that we’ve got lots of confidence and potential around.
In Mahindra Finance are you looking to create a larger retail consumer franchise?
The answer is yes, we have a very strong franchise in rural and semi urban markets, or what we call emerging India. We want to be the preferred financier of choice for this segment. We will offer all the products that this segment needs and therefore grow beyond just auto and tractor financing. We already have some of these products and others will come in along the way. That’s where I feel that we are very well positioned. There is a very aggressive growth plan for the business that we feel very confident about.
