Davos 2023: M&M Not Looking At Divesting Core Businesses, Says Anish Shah
We feel that there is a lot of value in the businesses being together, says Shah.
The Mahindra & Mahindra Ltd. which spans from real estate and farm equipment to financial services and autos, is not looking at divesting any core businesses for now as there is a lot of value in the businesses being together
"We have made commitments to investors and met every one of them," Chief Executive Officer Anish Shah told BQ Prime's Niraj Shah at the sidelines of the World Economic Forum in Davos.
"We've also said that, at this point, we're not going to look at divestment of any of the core businesses. We feel that there is a lot of value in the businesses being together," Shah said.
He pointed out that the farm business has the highest margins by far in the industry and the highest market share.
"But our auto business has the highest margin in the industry, but we don't have the highest share in autos overall," Shah said.
Therefore, he added, there are synergies that are in play right now and the company would continue to look at what is the real value of the synergy.
"If, at some point, we feel there's greater value in looking at alternate options, we'll do that as well," the CEO said.
Watch the full conversation here:
Edited excerpts from the interview:
Let's talk about how you see 2023 to be, considering it's a year which is dichotomous in the sense that the western world is going through a slowdown, but there is optimism around India and now with China opening as well. So, optimism around the eastern hemisphere. How do you see the dichotomy of these two pulls and pressures?
Anish Shah: So, India is better positioned because of some of the actions the government has taken very quickly, in terms of raising rates proactively, in terms of some of the other things they did on export duties, etc. So that has helped keep inflation on the curb and, as a result, we will feel some of the pressures. We are not going to be immune to that. But I think we will be better off overall and we are seeing that in our business today. All our businesses are actually going pretty great guns and that's momentum that we will hope continues to 2023.
So, M&M in the last two years has had some sparkling success across businesses. As a group or as the man who's heading the group, where do you see the largest set of opportunities in India and globally for the group say over the course of the next two or three years, if it's possible to kind of talk about it?
Anish Shah: So, if I just go across our businesses, our teams have actually done a great job and I will give all the credit to our leaders and their teams. The auto business has got tremendous momentum behind it, with a few great wins with the electric story coming in now. Our farm business tractors have done extremely well, farm machinery is a great growth opportunity. Mahindra Finance is on a very good turnaround path. Tech Mahindra has done well, it has to address margins and the team is focused on doing that. We have got a number of growth gems that are on target to get to a billion dollars in market cap each. We have had marquee investors like Ontario Teachers, coming in on a solar business, enthused by the plans that we have, which is essentially to grow the business fivefold in the next five years. So, we have got a number of businesses actually going great guns. For us, this year is to really scale up and continue to drive that growth
The bunch of those guys that you spoke about, including Ontario, are at Davos. How have the meetings been? Because a lot of CEOs that I am talking to, both global and India-based, are really talking about a lot of optimism despite the global growth headwinds.
Anish Shah: Yes, India is a shining star here. There are questions also. We haven't completely gone past those questions as yet. But those questions are being answered and we are seeing investment, questions around the ease of doing business. I think the government has done a lot to address that question. But that still persists in the minds of folks and they have got to come and try things out and see how it works. Investors are very keen to put more money in India, we have seen that across many of our businesses as well. So, overall, the mood has been very positive. I think this is India's time. But the next two to three years are going to be critical for us being able to take those actions, be able to attract foreign investment and take us to the next step.
I mean, you have done fantastically well in autos, but I couldn't think of a more complex time to be in autos: the competitive landscape, the whole transition and all of that. How do you see this evolving over the course of whatever number of timeframes that you can look ahead to?
Anish Shah: Competition in auto has made us stronger. That's frankly helped us or enabled us to build the products we build today. So, we welcome the competition that will keep us on our toes. We are well-positioned today to be able to match and, in fact, lead our competitors. We have done that across multiple models that we have launched. So, we are looking forward to this journey.
2022 was a banner year for you as far as the SUV segment goes. Now, on that high base, you have to show performance in 2023 at a point of time when there's this whole flux happening towards EV, even though on the four-wheeler side it will be a lot slower than what is on the two-wheeler side. How do you see 2023? Let's put it that way.
Anish Shah: So, we are starting the year with a very-strong order book. We also continue to get a very high influx of orders every month, for all our key models. We are in the process of doubling capacity in our auto business, and even that wouldn't be enough. So given that, we are starting at a good position today.
When I look at the SUV bookings versus the capacity that you have, you have double it, you treble it and are still going by the run rate at which the optimism was even around the electric launches. What do you do? Because there's an opportunity, but you probably go out of it in the measured fashion.
Anish Shah: Once we double capacity, we will be in a very-good place to meet the demand that’s there. And then, as electric comes in, we will add more capacity for electric. So that will be the path that we follow.
In which case, 2023, the base is high, But what will work in probably the auto industry’s favour will be the fact that the input cost, like to like, year on year will look a lot more reasonable than what they were. So, does that make 2023 also a year of optimism?
Anish Shah: That is clearly a tailwind that we will benefit from, if that pans out the way some folks would forecast at this point. But I will go back to core performance right now. The ability to put in that excess capacity and, then, the ability to deliver the orders that we have today. That in itself will help us, even though the base is high.
Okay, I haven't spoken to you enough and which is why I am tempted to ask this to you. And which is that do you reckon at some point of time in the very near future, you would want to see some more rewarding to investors, whether in the form of divesting certain key businesses out of the umbrella group. Is that something on the anvil?
Anish Shah: So, we have made commitments to investors, I have met every one of them. We also said that we are at this point not going to look at divestment of any of our core businesses. We feel that there's a lot of value in business being together. Our farm business has the highest margins by far in the industry. One would expect that given that we have got by far the highest market share. But our auto business has the highest margins in the industry and we don't have the highest market share in auto. In SUVs we do, but not in the overall auto industry. So, there are synergies that are in play right now and we will continue to look at what is the real value of the synergies. If at some point in time up, there's greater value in looking at alternate options, we will do that as well. But what we have seen today is that the synergy that we see across the group and keeping the businesses together actually builds much stronger businesses that investors should actually like and should want a lot more.
Last two questions. One is around not just your own company's capex, but the whole chatter around how private capex needs to come to the fore because the government is doing its bit. Hopefully, the private sector does it and the private sector will only do it when there is sense to do it. My question is, do you reckon that 2023 would be the advent of private capex or is it difficult to say that right now?
Anish Shah: A lot will depend on demand. I think it is a question for each company to address. We feel comfortable investing right now because we see a huge amount of demand. That's again driven by the products that we have. We are also comfortable in investing because we see a very strong storyline for EV and while we talk a lot about auto investment, we have also increased capacity in our farm businesses significantly. So, for us, it's again based on what we are seeing in the environment, based on what we see from our consumers.
What do you see in the environment from a domestic perspective? Rural, selectively, has been hurting, FMCG companies will say that, 'oh, boy, it's hurting'. You will say it is probably not showing for you. I am just asking, independent of what M&M would be thinking of, what are you thinking about the rural hurting? And the fact also just the point that the last one month, I have heard number of people who look at the economy, talk about how urban seems to be showing a little bit of chink in the armoury.
Anish Shah: So, we will see some weakness of the economy in the near term. As the global economy slows down, there will always be some pressure on India. In rural areas, agri has been a strong sector and we have seen a good kharif crop, a good rabi crop, so that has helped the agri sector to actually do well. Other parts of rural have struggled and that's something that we are hoping will turn around as we go through the year. But on balance, I would expect some spots of weakness in the economy overall. But I would also expect us to be much better positioned than the rest of the world.
That turn comes with the global economy turning you reckon, if whenever it does?
Anish Shah: The turn will come with the global economy, but, at the same time, there will be some tailwinds from lower-commodity prices, from lower oil prices. So, if the world does go through a recession, these are the tailwinds that will benefit India.
Okay, very quickly, any budget expectations, the last question?
Anish Shah: We have seen good budgets over the last two to three years and they have been growth-oriented, they have been focused on growing the Indian economy and that's exactly what we would expect going forward.
But, if anything, specific from our auto or any of your group businesses perspective, you would expect the government to dish it out?
Anish Shah: We feel very good about what the government is doing from a budget perspective right now and, as long as it continues to do the same, we are very happy.