We're not keen on diversifying at this point, says M&M's Anish Shah

Group has ten businesses 'which have lot of potential and can grow', says managing director and CEO-designate.

Anish Shah, managing director and chief executive officer-designate of Mahindra & Mahindra (M&M), tells Shally Seth Mohile in an interview that the group will remain focused on creating value for shareholders. Edited excerpts:

M&M has seen steady improvement in operational performance, but valuation is still at a substantial discount, when do you expect it to catch up?

If we look at what has happened since March, our stock price has more than doubled. It has been driven by our focus on capital allocation. The board’s decision to not invest in SsangYong was important and signaled to our investors that we are serious about capital allocation.

We have promised investors and analysts that by end of 2020, we will take action on firms that are non-performing. Our investors like the journey we started and want us to complete it. The next re-rating will happen once our international subsidiaries turn around and start contributing to earnings. The second set of actions is towards driving growth of the domestic business. Thirdly, we have identified significant growth drivers for the future, which we term ‘10 gems’. These are some of the actions underway, and it’s up to the markets to decide on valuation.   

What specific initiatives have you taken to improve international subsidiaries’ performance?

We started an exercise three months ago. We are conducting a detailed analysis of our international subsidiaries — of growth drivers, and does it have the potential for an 18 per cent return on equity? We are working to see if they can revisit their go-to-market, product, and channel strategies. The subsidiaries will have to show a profitable path.

Is it fair to assume that the group will no longer be as acquisitive as in the past?

M&M was the best performing stock in the Nifty for 17 years. That was driven by a very high level of fiscal discipline. There were stalwarts like Bharat Doshi and Uday Phadke, who set the discipline. We want to return to that. Acquisitions were made even then. So, we are not saying we won’t make acquisitions, but the bar in terms of fiscal discipline will be as high as it was in the past.

Is it fair to say that when you do acquire, it will be to scale existing businesses and not diversifying?  

You are right. We don’t expect to diversify even when we do make an acquisition. We have 10 businesses right now that we believe have a lot of potential to grow. We are not keen on diversifying at this point. We already have a diversified footprint. We need to scale it up.

The group had 179 subsidiaries, 30 JVs and 28 associates as of March 31. What will the number be at the end of the exercise?

This number doesn’t bother me as there are a number of subsidiaries that are not even operational. The idea is to focus on the big ones. SsangYong is an instance. These are the kind of firms that will have a large impact. If I bring 179 down to 100, it will not make any difference to shareholders.

It has been a little over a year since M&M stitched the deal with Ford. Are you revisiting parts of it?

 The intent of the joint venture hasn’t changed. Be it related to exports or Ford leveraging Mahindra’s cost structure to build a stronger Ford in India or helping us bring better technology and be able to share platforms and model. It has been delayed because of the pandemic and government approvals.

Will the auto and farm equipment segment get segregated over 3-5 years?

There is a reason why the two are together. There is a lot of synergy from material costs. We announced the best operating margins for farm equipment and auto businesses. If we can consistently show that the operating margins is the best in the industry, investors will want the businesses to be together. We did it in Q2 and we should be able to demonstrate the value in a sustained manner.