Mahindra group is evaluating new opportunities in emerging sectors: Anish Shah

Anish Shah, the managing director and CEO of the Mahindra Group

With rural consumption, government spending, and private sector investments identified as key drivers, the Mahindra Group has drawn up expansive capex plans, around Rs 30,000 crore over three years, spanning electric vehicles, solar energy, and farm machinery, Anish Shah, managing director and CEO of the Mahindra Group, told Moneycontrol in an exclusive interview.

Shah emphasized that while the group is evaluating opportunities in emerging areas like healthcare, drones, and consumer-related segments, any potential new ventures must align with the group’s key strengths and deliver strong returns for investors.

Mahindra will play significant role in driving India’s manufacturing growth: Anish Shah

Shah also highlighted the group’s disciplined approach to capital allocation, which, combined with a focus on growth opportunities, has driven strong performance over the last three years, adding nearly Rs 20,000 crore in cash to the group’s coffers. Edited excerpts

Could you briefly don your earlier hat as the president of FICCI, which you recently relinquished, and address a macroeconomic question? There’s good news and some not-so-good news about the Indian economy. GDP growth and macroeconomic indicators look fine, but there have been concerns about a lack of a significant pickup in private capital expenditure (capex). What are your thoughts on this?

First, it’s a pleasure to be here on Moneycontrol with both of you, Deborshi and Bodhi. Regarding the economy, I believe there is a strong, positive long-term trend. Yes, we will encounter certain blips along the way. Let me address the specific aspects you mentioned, as well as a few others.

On capex, we’ve been hearing for the past two to three years that while government capex has been robust, private sector capex hasn’t kept pace. This is somewhat understandable, as private sector capex tends to kick in (kicks in) when capacity utilization rises to a point where additional capacity is needed. In many industries, utilization has now reached 75–85 percent, which is when we expect private capex to start picking up.

In some pockets, this has already happened. For example, in the auto sector, we have tripled our capacity over the last three to four years, which involved a significant (amount of) capex. In the farm sector, we’ve increased capacity by 60 percent. So, while some industries have already seen substantial investments on a broader scale, it is a matter of timing before private sector capex gains momentum.

Government spending, on the other hand, has remained consistent. One thing the industry has appreciated in recent years is the government’s focus on long-term development rather than short-term fixes. This approach has a multiplier effect on the economy. There are short-term blips. Another important area is rural consumption, which slowed but has started to show signs of improvement. Factors like the monsoon and government spending play a role here.

Putting all these factors together, I’d say the long-term trend for the Indian economy remains positive, though short-term fluctuations are to be expected.

You’re present in a wide range of sectors, with a strong focus on tractors and SUVs. Could you share M&M Group’s capex plans at a macro level?

Our capex plans are ambitious. In the auto sector, we’ve already tripled capacity. We’ve made significant investments in electric vehicles (EVs), with an outlined capex plan of around Rs 25,000 crore for the auto business. Additionally, we’re investing in the farm sector, particularly in farm machinery, capacity building for global expansion, and other growth areas.

Our solar business is also doing exceptionally well, and we expect it to grow multifold. While we may not need to invest as much capital in that sector ourselves, other areas, including logistics, life spaces (Lifespaces), and holidays, are poised for significant growth.

Overall, we’ve discussed a capex number of around Rs 30,000 crore over three years, but we may exceed that, depending on opportunities.

You’ve been conservative in capital allocation but aggressive in growth. How do you plan to fund these capex plans? Will you unlock value within the group, or will you seek external capital?

We’ve taken a disciplined approach to capital allocation while being aggressive in identifying growth opportunities. This strategy has allowed us to perform well over the last three years. From a numbers standpoint, we’ve accumulated nearly Rs 20,000 crore in cash thanks to strong business performance and cash generation.

Our capex plans are funded by this cash and the additional cash we continue to generate. Moreover, we’ve seen significant interest from private equity (PE) firms. Their involvement has helped us conserve capital while leveraging their expertise to enhance our businesses.

Can you share which businesses have seen private equity interest?

We’ve already partnered with six PE firms across multiple businesses, including electric four-wheelers, electric three-wheelers, and renewables. These partnerships have created significant value, and we continue to explore opportunities in other areas with PE firms.

There has been speculation in the media, including Moneycontrol, about a potential partnership with Volkswagen. Could you clarify the status of this?

We’ve seen the speculation, and while partnerships are a key part of today’s business ecosystem, any partnership must align with our long-term strategy. We’ve already partnered with Volkswagen on battery and motor technology (which will be beneficial for electric vehicles). Initially, we thought of leveraging their (MEB) platform. However, we opted to develop our own EV (Born Electric) platform, which we believe is superior to existing platforms.

Regarding speculation about Volkswagen seeking a partner for its Indian operations, we evaluate all opportunities based on their long-term strategic value, technological benefits, and potential for future collaboration.

Would you consider partnering with other automobile manufacturers, including Chinese EV companies known for their advanced technology?

I’d invite you to test-drive our latest EVs. Our technology is competitive with the best globally, including luxury carmakers and Chinese manufacturers. Our EV technology is entirely indigenously developed at Mahindra Research Valley (Chennai), which has over 4,000 engineers. This team has done remarkable work, building not just EVs but also advanced combustion engine models over the years.

Moving on to other group businesses, Mahindra Finance was identified as your next growth focus. How is the turnaround progressing?

We had outlined a three-year turnaround plan for Mahindra Finance, focusing on improving asset quality, leveraging technology and data, and diversifying the business. Asset quality has significantly improved, with delinquencies now under 4%.

Technology transformation is about 65–70 percent complete, and (Next is) we’re making progress in diversification. Mahindra Finance has a strong foundation with a robust brand, skilled people, and effective processes. We’re confident that the turnaround will reflect positively in the numbers.

What is the timeline for achieving these milestones, and what are the growth targets?

We’ve set specific timelines, even down to the week, for various initiatives. By May, we plan to release the next three-year roadmap, refining targets for metrics like ROA and asset quality. The progress so far gives us confidence in achieving our goals.

Is there any corporate restructuring being contemplated for the parent company, Mahindra & Mahindra, especially in view of the foray into EVs, which is going to become a dominant product over the next three to five years?

For electric four-wheelers, we have created a separate entity called Mahindra Electric Automotive Limited (MEAL), where both BII and Temasek have invested. For electric three-wheelers, we’ve created another entity, which has received investment from IFC and the India-Japan fund. That’s the (element of) restructuring (that) we’ve done.

Beyond that, there has been a lot of speculation about separating auto. Every few months, it comes up as a rumour. The answer is no right now because our focus is on building long-term businesses. These are things we may look at a few years down the road. We feel there are a lot of synergies across our businesses right now, and there’s a lot of potential we’re tapping into. Our focus is on building these businesses, and any unlock from restructuring is not on our cards at this point in time.

What would be the exit path for people who are already invested in some of these companies?

On this front, we’ve talked about the potential of going public with both the four-wheeler and the three-wheeler businesses. But we’ve also said that’s not something we’re thinking of at this point. We are focused on building these businesses. The three-wheeler segment may progress faster than the four-wheeler because the three-wheeler industry is rapidly moving towards electric.

Our business has gone from zero to 95 percent electric, and we enjoy a 40-44 percent market share. It’s a strong fight to maintain that share, but the business has done extremely well with its current set of products. Hence, it may go public faster. The four-wheeler business will take much longer as there’s more to be done and required from an industry change standpoint. Those are potential opportunities, but we haven’t put much thought into them yet.

How about your growth gems? You’ve mentioned in the past that there will be listings of many of these growth gems. Which (is the) one do you see getting listed first? Do you have any timelines or visibility on that?

Let me first redefine or rather define what our growth gems are and where this concept started. In March 2020, while reviewing our portfolio, we identified several businesses we wanted to exit as part of our capital allocation decisions. However, we also saw a number of businesses with significant potential. Collectively, these businesses were valued at about $850-900 million, just shy of $1 billion. We believed these could grow dramatically given the opportunity they had. At that point, we set targets for each of these businesses to have a clear plan to achieve a market cap of $1 billion individually.

Three years later, the valuation of these businesses collectively grew from $900 million to $3.4 billion (in terms of collective businesses). We then raised the bar and set a new target: to grow this valuation to $17 billion over the next five to seven years. This (that is what) defines growth gems for us now.

Regarding going public, from our standpoint, we focus more on building these businesses. When the time is right and it makes sense, we will go public. For instance, three of these businesses—Holidays, Life Spaces, and Logistics—are already public. Renewables also went public through an INVIT and is now the largest renewable INVIT in India. The electric three-wheeler business will likely reach public markets faster than the others, as mentioned earlier. Some other businesses will follow as they grow in scale.

Since we don’t need public capital right now, our approach is to go public when it’s appropriate. Our focus remains on building these businesses for the long term, not on quarterly numbers.

How do you balance quarterly performance expectations with your long-term vision for Mahindra Group, given the large FII and FPI shareholding in your listed entities?

The targets we (had) outlined were first an 18 percent ROE, which we achieved within 18 months and have since maintained across the group. We also aimed for 15-20 percent EPS growth. Against that target, we’ve delivered a 40 percent compounded growth in EPS over this time period. This demonstrates our ability to deliver short-term performance while focusing on long-term growth.

For individual businesses, our focus is not on quarterly numbers but on sustainable growth. In some cases, we openly communicate with investors about incurring losses in certain areas to invest in growth. Our track record has helped build trust with investors, allowing us to take these decisions.

Are there any new areas that Mahindra Group is considering entering, such as semiconductors or other emerging sectors?

This is a discussion we’ve been having internally for over a year. We already operate in about 70 percent of India’s growth sectors for the next decade. Our focus remains on opportunities that align with our strengths, such as leveraging the Mahindra brand and existing synergies across businesses. While we’ve explored new areas like healthcare, drones, and consumer-related segments, we’re yet to finalize any specific opportunity.

Would your decisions also factor in national priorities, or would they primarily align with Mahindra Group’s strengths?

We already play a significant role in India’s national priorities, including EVs, agriculture, tourism, logistics, and renewables. Any new ventures must align with our strengths to deliver strong returns for investors. This focus ensures that we can leverage synergies and provide outsized returns.

How does the China-plus-one strategy and opportunities in manufacturing fit into Mahindra’s plans?

We believe India has the potential to become a global manufacturing hub, but for that to happen, we need cost competitiveness, ease of doing business, and high-quality output. Groups like Mahindra will play a significant role in driving India’s manufacturing growth. However, our focus is on manufacturing for ourselves rather than others, which aligns with our vision of building sustainable businesses.

You know you have a larger-than-life figure as a promoter in Anand Mahindra. How frequently do you interact with him? How much input does he provide, and what is the nature of your relationship?

I’m very grateful for the opportunities I’ve been given, as well as the support Anand has extended. It’s always challenging for a promoter to step back and adopt a non-executive role, but he has demonstrated a very high degree of empowerment. Along with this empowerment comes guidance, which I often seek from him. Anand is always there when needed, and at the same time, the teams are fully empowered.