Critical Consolidation
One of the super action businesses for Mahindra & Mahindra (M&M) is Auto & Farms. The sheer size of these businesses is enough to create a ripple effect across group companies, should even a part of a plan not play out as per expectations. Not surprisingly though, some of the decisions that Mahindra took whether it was exiting partnerships, relinquishing stakes or a very firm view on capital allocation were connected with this division.
The company has moved goalposts in some areas — electric vehicles — and become more aggressive in others — global targets for the farm equipment sector (FES) and new launches planned till 2026. If there was one attribute that underlined most of its actions, it would be a laser-sharp focus, defined by a clear path of economic viability. On the face of it, there are no flaws in this strategy but the jury is still out on whether this will deliver the desired outcomes.
Farms: Global Leadership
M&M is already a world leader in tractors by volume, but the road forward is about broad-basing and consolidating this leadership across FES. “We have a very strong presence in domestic tractors and the leadership between the two brands, Mahindra and Swaraj, continues. We see a big opportunity to build farm machinery as a growth driver,” notes Rajesh Jejurikar, Executive Director, Auto & Farm Sectors, M&M.
Globally, tractors’ revenue is about 35 per cent of total agriculture machinery. In India, this equation is more than reverse, with non-tractors farm machinery being only at about 20 per cent. This is where the headroom for the next level of growth comes in for M&M. “We often say India is tractorised, not mechanised. Farm mechanisation penetration today is what the tractor market was in the 60s. We are doing much work to grow this for machines that go with tractors and also the self-propelled ones,” says Jejurikar.
To tap the potential of this space, Mahindra has acquired, partnered and reshuffled businesses internationally to bring some of this technology to India and ensure its global footprint also builds on this strategy. There is also the likes of Krish-e initiatives, where M&M is introducing farming as a service. “The Krish-e initiative has a significant on-ground presence through our dealer outlets and digital presence through apps, precision farming, rental models and the likes. We are doing some exciting work here that we believe will generate value,” Jejurikar says.
M&M’s global story around FES is also very prominent with strength in markets such as North America, where it is the number three brand in tractors. The acquisition of Mitsubishi in Japan also, investments in Finland, business reshuffle in Turkey, and presence in Brazil, have all strengthened M&M’s global presence, according to Jejurikar. The reason this is important is that one of Mahindra’s pain points in its low-performing phase was the accrued losses of its international subsidiaries. “We now have turned around our FES subsidiaries from a profit management viewpoint, which was a major task last year. And we have seen three positive quarters in terms of profit in our FES subsidiaries,” Jejurikar adds.
Design & Digital First Approach
Technology became priority for the auto industry on the whole. This applied to Mahindra as well, and M&M looks at it through many legs. Internally, M&M made technology and digital work harder to improve cost structures and drive business efficiency. The company implemented everything in manufacturing 4.0, using digital sensors, internet of things (IOT), computer synchronised machines and so on. The second part was transforming customer experiences. “This was especially important from a perspective of how consumers buy, discover and engage with the brand, content creation and everything in a customer journey from search to conversion,” explains Jejurikar. Thar, for example, was completely digitally-led in its launch.
The third leg is how technology is used to get products to work for better impact, both in farm and auto sectors. “There are several use cases where we have been able to execute precision farming, predictive analytics, automation and the like for our customers, demonstrating the benefits in metrics such as productivity, output, cost reduction, etc,” says Jejurikar, adding, “In auto, the XUV700 is a prime example of how we have completely transformed the intelligence of the product, programmed Alexa to work in a certain way, provide different drive modes, and customise even each sub-aggregate of the product. In product, we have used to connect it back to improve performance and experience.”
M&M has also made design central to its strategy — it has launched M.A.D.E, the studio in the UK in addition to the India studio. Besides, it has hired former Tata head of design, Pratap Bose. “Design is a strong building block for all our products including electric. That would be key in differentiating us going forward. We will also build a strong human-machine interface capability since user experience will be the crux to success in the born electric space,” says Jejurikar.
Reviving The SUV Glory
M&M has refocused all its energies on SUV once again, identifying this as its primary force. The launch of Thar in 2020, and the recently launched XUV700 will see the group launch nine new products by 2026.
Commenting on the performance of the sector, Anish Shah, MD & CEO, M&M observes, “Thar did very well for us opening new segments. The XUV300 is doing well, generating 6,000-7,000 bookings a month. The Bolero Neo got 7,000 bookings in its first month. We are excited about the XUV700. I personally tested it and it is simply a phenomenal vehicle, one that we would be very proud of. A new launch is coming up early next year as well – in all, we have five blockbuster products in a 12-18 months timeframe. This positions M&M very differently.”
Market experts, too, are optimistic about some of these moves. According to Deepak Jasani, Head, Retail Research, HDFC Securities, Mahindra’s new leadership, fresh talent, and a sharper focus on its core business underpinned by 12 all-new models in the auto space have set in motion the biggest transformation for the Indian SUV brand since the launch of the Scorpio. “Thar and XUV700 have created ripples and attracted large bookings. These models may allow M&M to recapture its lost glory in SUVs,” Jasani notes.
On this aspect, Shah is confident. “We have a new logo, and we are looking at regaining our number one position in SUVs. With a very grounded platform, where we have many strengths, we are looking at reaching the sky and taking the company to a new level. The next step for auto will be electric vehicles and taking leadership in that,” he comments.
The Revisited EV Strategy
M&M sees EV in two buckets — the commercial segment, which it calls last-mile mobility like three-wheelers or small four-wheelers and shared mobility, and the personal segment. “In the last-mile mobility segment, there is a clear return of economic benefit for using EVs. In the personal segment, however, the additional investment in the asset does not really pay off. We are seeing traction in the commercial segment,” Jejurikar says.
M&M believes that the goods last-mile mobility is ready for take-off and is its primary area of focus right now. “We have set up a separate vertical calling last-mile mobility. We see many opportunities to grow there in both domestic and export. We are well-positioned there with a strong product. The personal segment will take three to five years to evolve and penetrate. Our priority is to get a top-notch SUV electric portfolio ready by 2025.”
This is a change from M&M’s earlier strategy, where even the shared mobility segment was earlier in consideration. Some of these new products would be derived out of M&M current IC engines and some would be born electric. M&M’s platform product strategy is to prepare it for 2025-30. For the born electric portfolio, the company is looking at its international presence once again, strengthening it with the focus on the right talent. All of M&M’s plans place importance on sustainability as well, which is a group and company objective for Mahindra.
Having rejigged much of its plans, M&M’s farm & auto sector intends to retain the might of an 800-pound guerrilla, but with an added hawk-like focus on targets. And this, very much, is in tune with the group’s overall restructured strategy.
