…The Inflection Points at Mahindra

The history of Mahindra & Mahindra Ltd. (M&M) as a company can be mapped as a series of inflection points, often resulting out of inspired action or resilience in the face of a crisis. Be it a technological challenge, a regulatory crisis, or a drop in investor confidence, a difficult situation seems to bring out the best in the company. A difficult terrain has also often moved the company on to a different route altogether, leading to improved standards and a better growth trajectory. In many ways, these inflection points define what M&M is today.

Take for instance, the year 2002, when the M&M stock was dropped from the Sensex -- the stock market index comprising 30 bellwether stocks -- after a bad year. It was as if M&M was no longer one of the bluest of the blue-chip stocks in the market. The share price had touched a low of Rs 51, from a high of Rs 696 three years earlier.

The M&M top brass saw this as a crisis as well as an opportunity and got together the entire 143-member top management of the group for confabulations at 15-days’ notice, calling it a ‘Blue Chip Conference’. The ritual started in 2002 went on till 2013 and had 500 people attending, and then later evolved into a smaller annual conference called M101 that continues till today.

The first Blue Chip conference aimed at aligning the various businesses and introduced four Mantras – Leadership, Innovation, Globalisation and Financial Returns. These mantras provided synergy and gave the diverse group companies a common way of working. A ruthless focus on financial discipline was underscored to ensure that the return on capital employed (ROCE) for every business was more than the cost of capital, or else investors would not back the stock.

The Blue Chip helped tide over the crisis rather effectively as the financial targets were met within a year. The conference then started looking at other goals. At the Blue Chip Conference of 2004, the then vice-chairman and managing director Anand Mahindra made a presentation on how the automobiles business of the company was at the bottom of the league table for customer satisfaction. The JD Power indices for customer satisfaction and sales satisfaction placed M&M at 10^th and 12^th spots respectively in 2004.

Pawan Goenka, who headed the automobiles business at the time as its chief operating officer (COO), recalls how embarrassed he felt on that day and left the conference to write an emotional email to all employees of the auto business, with a clear appeal to make ‘Customer Centricity’ as the biggest focus for the business, which was the fifth Blue Chip Mantra. On that evening he stood in the last row for the group photograph. This “jolt”, as Goenka calls it today, propelled the company to work its way into the top five of both CSI and SSI by 2006. It also hit the top spot in SSI in 2015, and has been in the top 3 in both CSI and SSI for the last three years.

There are many such examples of turning adversity into opportunity at M&M. The Blue Chip Conferences, which also improved financial performance at M&M, were preceded and followed by other challenges and responses. In the 1970s M&M adapted a tractor engine for utility vehicle application, in the 1990s it launched a number of services businesses that now account for half its revenues and two-thirds of its profits. Bharat Doshi, former Group CFO of M&M, says: “Whatever is the magnitude of the problem, we will find an answer. This resilience and survival instincts are part of the DNA of M&M.”

THE ENGINE SWITCH

Doshi had joined M&M in 1973. In October that year the Organisation of Arab Petroleum Exporting Countries (OAPEC) declared an oil-embargo. Crude prices jumped from $3 a barrel to $12 within three months, and domestic petrol prices also shot up. The M&M Jeep at the time used a 1953 vintage petrol-engine that was not known for being fuel efficient. As fuel prices rose sharply, demand for the Jeep fell -- from 14,000 units sold in 1973 to 8000 in 1974 and then only 6000 in 1975. With inflation touching 14%, the government of the day imposed strict price control on tractor manufacturers. Government officers would scrutinise production costs of manufacturers and recommend a selling price. The review and price recommendations always came with a one-year delay. With inflation soaring, the recommended selling price always lagged - the cost of manufacturing the product rose, leading to losses.

The answer to the problem was to find a fuel-efficient engine for the Jeep, to make it attractive to a buyer. Buying a foreign engine required government permissions and that would have entailed substantial delays. Diesel, at the time, was priced at one-third the retail price of petrol, and one solution could be to adapt a Mahindra tractor’s diesel engine for the Jeep.

In 1976-77, a team of M&M engineers converted the low-speed, high-powered diesel tractor engine to a high-speed, high-powered diesel automobile engine, in a record time of six months. This engine became a huge success. Goenka, currently MD & CEO of M&M, says the engine, with continuous refinements, known as the DI, has continued till date, and now conforms to BS-VI norms. M&M still fits it in some of its latest products like the Pikup, as it is a favourite in rural India, with parts easily available and mechanics familiar with its repairs.

The Scorpio Gamble

The 1990s saw another turning point as M&M invested heavily in research to build a car from scratch. It also discovered the power of marketing a product.

Goenka, who had been head hunted in 1992 from General Motors’ R&D Unit in Detroit, to lead automobile research and development for M&M was the man in the hot seat. With the opening up of the economy, global competition had entered India and M&M had two options before it. It could take the licence of a proven, ready-made vehicle from a global major or it could develop its own vehicle. It chose the latter.

The company decided to spend beyond its means, and if the Scorpio hadn’t succeeded, it could have taken the company down with it. “A gutsy call” says Goenka, by a company that had never developed a full vehicle earlier. The Scorpio was launched at a price of Rs 6 lakh. “At the time, no one would have believed a Mahindra vehicle could sell for Rs 6 lakh, (which was the price at which high-end automobiles from global majors were retailing in India). Success of Scorpio gave us the confidence that we could do anything,” Goenka says.

The Bolero, launched a few months before the Scorpio, was, however, a late bloomer, that flowered three years after an initial slow start. It got a marketing rebirth under Rajesh Jejurikar, who is now the head of auto and farm equipment sector for M&M. The Bolero became a favourite in rural India. “The internal rate of return on the investment on the Bolero can’t be written down in a column on a spreadsheet -- it is so huge,” Goenka says.

Bold and Beautiful

M&M has seen many other radical moves, and some acquisitions that re-defined the group. Way back in 1994, Mahindra made the audacious decision to set up Mahindra USA to sell its tractors in North America -- world’s most competitive market. This was the beginning of Mahindra’s globalisation efforts. Today, Mahindra is the third largest tractor brand in the USA in the segment it competes in.

The creation of the 10-seater Commander from the 6-seater Jeep to take advantage of lower taxes on offer for the larger vehicle, was one. Investment of over Rs 4,000 crore in a manufacturing unit in Chakan, in the middle of a slowdown turned out to be a bold and yet far-sighted move as it paid dividends as the economy improved.

When it comes to acquisitions, the buyout of Satyam and its subsequent merger with Tech Mahindra, changed the contours of the group, balancing its revenues equally between manufacturing and services. The acquisition of Punjab Tractors, and that too on the second attempt allowed M&M to remain the undisputed leader in tractors in India, and then emerge as a global major in tractors with presence across the world.

Some radical moves proved to be turning points and others like the DI engine or the Scorpio provided a point of inflection for the company’s fortunes. They also helped define the contours of a corporate adventurer like M&M.