Tesla and other global players are welcome as long as they make in India, says M&M's Anish Shah.
Watch his conversation with Niraj Shah on 'Profit Insights'.
Watch his conversation with Niraj Shah on 'Profit Insights'.
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TVTranscript
00:00 [MUSIC PLAYING]
00:03 Mahindra and Mahindra results and the commentary
00:11 has received a thumbs up from the analyst community.
00:13 And presumably, that's the reason.
00:15 And of course, buying is the reason
00:17 why Mahindra and Mahindra shares have hit record highs today.
00:20 We get in Dr. Anish Shah to talk about what
00:23 went behind the commentary that came in from their end
00:27 and what is his view, more importantly,
00:29 on what the next 12 to 24 months hold in store in light
00:34 of the fact that we've received mixed
00:36 commentary from multiple other corporates about what growth
00:39 could be like over the next 12 months.
00:41 Dr. Shah, good having you.
00:43 Thanks for taking the time out.
00:44 I would like to divide this chat, one, into M&M,
00:48 and two, into how do you see the world from your landscape.
00:52 Though I know we spoke about it just recently in January.
00:55 But from there until now, some other comments
00:57 have come in from some other promoters as well.
01:01 Can I think of what you've done and what
01:05 you will do at M&M over the next 12 months in the auto segment
01:08 as a tale of two ends, if you will,
01:13 that tractors may not necessarily do that well,
01:17 but the SUV segment or the cars or the passenger vehicle
01:23 segment is really striking the right chords?
01:26 [AUDIO OUT]
01:30 So Neeraj, it's a pleasure to be here with you.
01:32 And I would actually expand what you said, because for us,
01:38 it's really a tale of multiple businesses doing extremely well
01:43 altogether.
01:44 Even our farm business has done very well.
01:47 Yes, the farm industry is flat right now versus a prior year.
01:52 We expect it to go down a little further,
01:54 it will close the year at negative 5%.
01:57 But we've gained 80 basis points of market share.
01:59 And when a market share is above 40%,
02:02 it's not easy to gain 80 basis points.
02:04 And that's allowed us to keep profitability high.
02:07 Margins have continued to be high.
02:09 And overall, the farm business contributes very well
02:12 to our profitability.
02:14 Auto has clearly seen a lot of progress
02:17 over the last few years coming out of the products
02:20 that we've delivered, which truly are world-class products
02:23 and have been beating the competition hands down.
02:26 So that's been a big plus for us.
02:28 But beyond that, as we look at a number of other businesses,
02:31 Mindore Finance is very well back on track.
02:34 We look at our growth gems.
02:35 They are delivering at a very high level.
02:37 Our solar business has introduced or listed
02:40 India's largest renewables in width
02:43 and is set up for significant growth.
02:46 We planned for a 5x growth in the next five years.
02:49 We're now evaluating whether we can grow 10x
02:51 in the next five years or somewhere between 5 and 10.
02:54 And multiple other growth gems also
02:56 are firing on all cylinders.
02:57 So today for us, it's really about pure execution.
03:03 It's creating plans that were realistic,
03:06 at the same time aggressive, and then
03:09 executing on those plans.
03:11 Interesting you say that.
03:12 I mean, execution would be the primary driver when
03:15 demand will not be a concern.
03:17 I hear some of the other CEOs/promoters
03:20 come in recent past.
03:22 Baba Kalyani and Amit Kalyani spoke on air.
03:24 Some others have said that too.
03:26 Though I must agree that it is mixed commentary around what
03:29 the state of demand could be in India and the world
03:33 when Europe and China are looking cagey.
03:35 Now, you've spoken about this in the past.
03:37 But I would love for you to share some light.
03:40 If you are concerned about that, and would you
03:42 believe that M&M and different businesses
03:44 could still perform even if the growth numbers don't
03:47 look that great in those areas of the world?
03:50 So first, we feel India is very well positioned.
03:57 And we can talk in more detail on the questions
04:00 you have specifically on India.
04:02 But the rest of the world also is looking better
04:05 than it did a year ago.
04:07 Yes, it is going through some stress.
04:08 We do expect some more concerns.
04:10 Inflation's not completely gone away as yet.
04:13 Geopolitical issues are still alive and kicking,
04:16 and do end up bothering us from time to time,
04:19 as we've seen more recently from the Red Sea attacks.
04:22 So all of those uncertainties are out there.
04:25 But we've learned to live with those uncertainties.
04:27 We've learned to, in some ways, find solutions to them
04:31 and thrive in them.
04:32 After having gone through COVID, the level of confidence
04:34 on that is much higher.
04:36 So that, combined with the power we see in India today,
04:41 in the Indian economy, I think positions us really well.
04:46 OK, so I'm sorry.
04:47 I'm hearing you say that you don't
04:51 seem to be perturbed by growth pangs
04:54 that some other people might be perturbed with.
04:56 Because I heard you say that the world is actually
04:58 a better place than what it was 12 months ago,
05:00 at least from your perspective and your business.
05:02 That's correct, Neeraj.
05:07 We are not perturbed by it.
05:09 We will live with those uncertainties,
05:11 work through them.
05:13 As I said, the India market is strong.
05:15 And beyond the India market, the products
05:19 that we have and the businesses that we have
05:21 are very well positioned.
05:23 And that's really what's driving the growth for us.
05:26 A couple of questions on the auto piece.
05:28 Now, the volume, Q3 volumes on the auto side
05:36 were very, very strong.
05:37 I believe you've said that Q4 SUV volumes are
05:40 likely to be flattish, though.
05:43 And at the same point of time, I also
05:46 see that you mentioned that in the case of certain models,
05:49 like XUV 700, for example, order bookings
05:53 had gone down because of, one, the waiting period.
05:56 Two people got confused that XUV is not across the price range,
05:59 but only at the upper end.
06:01 So help us understand, is it a demand-led piece which
06:06 is making flat volumes?
06:07 Or is it firmly on the supply side
06:10 and the perception which may change very swiftly
06:13 in quarter four or maybe quarter one of FY25?
06:21 So we have more than doubled our capacity.
06:24 We were at 22,000 not so long ago, 25 then.
06:29 And then we had laid out a path to get to 29,000 two years ago,
06:33 39,000 last year, and 49,000 by the end of this fiscal year.
06:37 We're at 44,000 today.
06:39 And the increase in capacity is really
06:42 what has helped us bring down the wait times
06:45 and bring down the order book.
06:47 At the same time, the order book today is 225,000.
06:50 And as we told our analysts as well,
06:53 we would like to see it lower, not at that higher level,
06:56 because a high order book means long wait
06:58 times for our consumers.
07:00 And we are seeing very good demand.
07:02 We are seeing very good growth numbers.
07:04 And the challenge for us is, how can we
07:06 continue to ramp up capacity to bring that order book down
07:08 further?
07:09 So the order book has come down largely
07:11 because of our capacity increases.
07:13 And as we go forward, we would want
07:16 to continue bringing that down.
07:17 OK.
07:18 And 2025, presumably-- or 2024, excuse me-- presumably
07:23 will be an exciting year.
07:24 Or the next 18 months could be exciting,
07:26 because I believe there are some new launches happening.
07:29 Some unthought of models a few years ago
07:33 may be hitting the Indian landscape from your end
07:36 as well.
07:36 So talk to us about two things, Dr. Shah.
07:39 One, how exciting would be these launches,
07:42 and what could it mean for volumes, part one.
07:45 And two, you've chosen an interesting path
07:48 of being on EVs versus hybrid.
07:51 Some other companies are doing completely the opposite,
07:54 if you will, in a predominant way.
07:56 Tell us your thoughts on the increasing competition
08:03 in the EV landscape, particularly
08:05 this whole conversation around global companies, Tesla,
08:09 what have you, might also making a foray
08:11 into the Indian markets.
08:12 So you've got lots of questions in here,
08:17 Raj, so let me take them one after the other.
08:19 First on our excitement, we've got the five-door--
08:24 go ahead.
08:25 No, I'm saying so sorry for too many questions,
08:27 but please humor me.
08:28 That's fine.
08:34 First on the excitement for this year,
08:37 we have the five-door car, and more importantly,
08:41 beyond that, we have a Born Electric SUVs being launched.
08:45 These are going to be six SUVs that are coming up.
08:48 We had five initially.
08:49 We've added one more.
08:51 And they will start launching this year
08:55 over the next 12 to 18 months.
08:57 And these are a fantastic set of cars.
09:01 These, I would say, are going to compete
09:03 with the best in the world.
09:04 And our hope is that they will move ahead of the best
09:08 in the world as well.
09:09 I've test-driven three of them.
09:10 They've come out really well.
09:12 And we're looking forward to that launch.
09:15 So that's going to be a big deal for us.
09:18 The second question that you had was on hybrid versus EV.
09:22 Now, hybrid is something that's really an extension of ICE.
09:25 The emissions are the same.
09:26 Fuel efficiency is slightly better.
09:28 The cost is higher than ICE.
09:30 We had a choice to make whether to do hybrid and EV
09:33 or whether to go for EV only.
09:35 And we chose EV.
09:37 We can always go back to hybrid if consumers want that.
09:40 That's not going to be difficult to do.
09:42 But EV is the technology for the future
09:44 because that is a dramatic change.
09:45 The vehicles are far better.
09:47 The emissions are non-existent.
09:50 You've got a much lower operating cost.
09:52 There will be certain hiccups as the EV ecosystem develops
09:55 because you need to have a charging ecosystem that
09:58 makes it as easy to create a charge as it is
10:01 to fill petrol or diesel today.
10:03 And that will take some time, which
10:05 is why governments around the world are incentivizing EV
10:08 because they see the benefits of it at the end.
10:10 You have countries like Norway, which are 90% plus EV right now.
10:13 And they've gone through all of those challenges.
10:15 And many other countries are going through them
10:18 at this point in time.
10:18 So for us, we feel that a very strong EV portfolio
10:22 is the path for the future.
10:24 At the same time, we are focusing
10:26 on a strong ICE portfolio.
10:27 And if the consumer wants hybrid, we will bring that in.
10:30 But as I said, hybrid is really an extension of ICE.
10:35 And then to get to your third question on what we are hearing
10:38 around imports, et cetera, we've said this before.
10:42 We have a very clear message on this
10:44 that if you believe in India, then make in India,
10:48 invest in India.
10:50 It is actually very unfair for consumers
10:52 if you import from outside without a commitment
10:54 to the market because the consumer doesn't know,
10:56 exit tomorrow.
10:58 And when a consumer buys a vehicle,
10:59 they want that vehicle for the long term.
11:01 They want the manufacturer to be there for the long term
11:03 to support them in the choice of that vehicle.
11:06 India is in a very strong position right now
11:09 and will continue to get even stronger.
11:12 And therefore, the Make in India initiative
11:13 that the government has launched is something
11:15 that we support wholeheartedly.
11:17 And we feel that companies that can make in India
11:20 to research in India, develop products for the world,
11:23 will make India only stronger, which
11:25 is what we would completely encourage.
11:27 At Mahindra, we have benefited from competition.
11:30 The products we make today are far better
11:32 than the products we made 10 or 15 or 20 years ago.
11:36 And that's because we've evolved with competition here.
11:38 So we welcome competition.
11:40 And we are happy to compete with them.
11:43 As I said, we are creating world class products here.
11:45 So therefore, our message is, if you believe in India,
11:48 then make in India.
11:49 I have three more questions, Dr. Shah.
11:52 One is on tractors, one is on margins,
11:53 and one is then on the overall other businesses
11:56 before we wrap up.
11:57 Firstly, on tractors.
11:58 Now, I heard you say that there is farm equipment
12:01 has seen some bit of significant market share gain on that base,
12:05 per se.
12:06 But in some sense, most notes that I've read this morning,
12:11 and just looking at the kind of numbers that have come out,
12:13 there seems to be a bit of a cyclical downturn.
12:16 Possible to predict when is it that this
12:18 might see flattening out or an uptick which
12:22 might aid your volumes as well?
12:24 I'm sure you're happy with market share gains.
12:26 I'm sure you will be happier with better volumes.
12:28 Clearly, yes.
12:34 And it is, as you said, a cyclical downturn.
12:38 We have always seen this in the farm industry over the years.
12:42 At this time, we've been flat.
12:44 Last year, we'll be negative 5% this year.
12:47 It seems slightly better than the downturns
12:49 we've seen in the past.
12:50 And usually, they come back reasonably quickly.
12:54 So something that no one's been able to predict as to how long
12:59 that will last.
13:00 But we are fairly optimistic.
13:02 And while there has been a lot of talk about rural distress,
13:05 we feel that an industry here that
13:08 has grown 27% in one year, three years ago,
13:11 and is somewhat flattish right now,
13:13 is really not in that bad a shape overall.
13:16 Our farm machinery business grew 30% year over year
13:19 in the same industry.
13:21 And again, yes, that was driven by market share gains
13:23 as the industry was lower.
13:25 So for us, it's par for the course.
13:29 We will have certain years where we are flattish.
13:31 And it's core execution, again, that
13:34 will drive our performance through that time period.
13:37 OK.
13:38 The belief that a couple of analysts
13:40 have expressed post the call yesterday
13:42 is that over the course of the next 24 to 36 months,
13:46 your revenue growth, let's say, early teens,
13:49 but your EBITDA growth could be stronger.
13:51 Now my question is, if indeed the rural market and thereby
13:56 the tractor market, both globally and locally,
13:58 does not show a swift pullback, do
14:02 you reckon that you will still be in a position
14:04 to be able to expand margins?
14:05 Because I believe Q3 margins are partly flat also because--
14:08 or impacted partly because the tractor business isn't quite
14:12 firing on all cylinders, even if you're gaining market share,
14:14 but not quite firing on all cylinders.
14:16 So on this, Neeraj, we actually had a chart in the analyst
14:23 meet yesterday where we showed that despite the volatility
14:27 in the overall industry over the years,
14:31 we've been able to keep tractor margins fairly stable.
14:34 And therefore, even with some of the challenges
14:37 that may come by beyond what we see today,
14:39 we feel fairly good that we can maintain a level of stability
14:43 around tractor margins.
14:44 We did see them dip about 60 basis points, 70 basis points
14:49 in this quarter because of a one-time impact
14:52 that we had from specific expenses we did.
14:54 But beyond that, we feel fairly good about maintaining
14:59 tractor margins.
15:00 Yes, it will fluctuate in a very small range,
15:03 but it's been reasonably stable over time.
15:05 And overall, console margins for M&M,
15:07 you reckon that there could be an upward trend,
15:09 a better than revenue growth number on EBITDA
15:13 and stable margins possible?
15:15 So we have seen a significant increase in auto margins.
15:22 We had promised 300 basis points about a year,
15:25 year and a half ago.
15:27 We achieved that and then achieved an additional 170
15:29 basis points on top of that.
15:32 And as we look at the strength in auto,
15:35 again, we feel good about where we are right now.
15:38 And as I said, for us, overall performance
15:41 is driven by execution, not just in these two businesses,
15:44 but other businesses.
15:46 So it's important for us to, as I tell all our folks,
15:49 keep our head down to what we're doing,
15:52 and the results will show for itself.
15:53 OK.
15:54 Sorry, if you have time, I just have one last question,
15:56 Dr. Shah.
15:57 Should you have the time?
16:00 Yes, Neeraj, go ahead.
16:01 Just one last question.
16:02 In all our interactions thus far,
16:04 there have been three of them, you've
16:06 spoken at length about how the newer businesses, the businesses
16:09 of tomorrow, if you will, whatever the nomenclature is,
16:12 and how you're betting on them.
16:13 Now, you have some erstwhile legacy businesses.
16:16 By legacy, I don't mean in a bad way,
16:18 but ones which are doing well, but large businesses.
16:20 And you've been talking a lot about the businesses
16:22 of the future.
16:23 Do you reckon that an M&M consolidated book five years
16:27 out will look materially different in that the quantum
16:31 of contribution from the smaller businesses,
16:33 hitherto smaller businesses, as a percentage overall,
16:36 would be much higher than what it is right now?
16:38 It will absolutely look materially different,
16:45 because we have 10 growth gems.
16:48 And we started with the first challenge for them
16:51 is to hit a billion dollars of market cap each.
16:54 And many of them came close to it.
16:56 While we told them you have three to five years,
16:58 within two years, many of them were at $600 to $900 million.
17:01 And we've now increased that bar to say,
17:04 you've got to grow 5x from where we are today in the next five
17:07 to seven years.
17:09 So as we see significant or exponential growth
17:12 in these businesses, they will start contributing
17:14 in a much bigger way.
17:15 And in fact, they are doing so already.
17:17 So as we see our results today, it's
17:19 not just because of our large businesses.
17:21 In fact, one of our large businesses, Tech Mahindra,
17:23 has had some challenges and is on the turnaround path now.
17:26 Another large business, Mahindra Finance, had some challenges.
17:29 We put them on a turnaround path a year and a half ago.
17:31 And they are doing exceedingly well,
17:33 as has been shown by the results that they have submitted.
17:36 So we want all our business to really contribute
17:38 to driving the Mahindra Group forward.
17:41 OK.
17:41 Well, we'll maybe talk about specific numbers
17:43 the next time that we talk at the end of the year,
17:45 on this aspect particularly.
17:47 But Dr. Shah, lovely talking to you.
17:48 Thanks for taking the time out.
17:50 Congratulations on what your commentary
17:52 has done for the business today or the stock today.
17:54 But thanks for taking the time out and speaking to us.
17:57 Thank you, Neeraj.
18:01 Always a pleasure to be here with you.
18:02 Likewise, sir.
18:03 And viewers, thanks for tuning in.
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