How Anand Mahindra Built His Empire
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How Anand Mahindra built his $12.5-billion empire
Anand Mahindra
For many Indian businessmen, the reforms of July 1991 spelt the end of a cosy way of life.For Anand Mahindra, it nearly meant the end of his life. Striking workers of the Kandivali factory
of Mahindra & Mahindra, or M&M, in Mumbai had gheraoed him in his plant office and were
baying for his blood. Mahindra, then 36 and deputy managing director of a company known for its
tractors and the Jeep, had said there would be no Diwali bonus unless workers stepped up
productivity. Mahindra's ordeal lasted for nearly four hours, before the workers calmed down.
Mahindra, who had been brought in earlier that year from Mahindra Ugine Steel, another business
controlled by his family, held his ground and the workers yielded, agreeing to increase productivity.
The 1,230-odd workers at the engine factory in Igatpuri, 125 km northeast of Mumbai, who had
decided not to make more than 70 units a day even if this left them enough time to play cards, also
gave in.
Productivity gains ranged from 50 to 150 per cent: Bharat Doshi on the
gains after the 1991 strike
Three years later, around half that number were churning out
125 engines a day. "Productivity gains ranged from 50 to 150
per cent," recalls Bharat Doshi, Group Chief Financial Officer,
who has been with the group longer than his boss.
Today, Mahindra does not worry as much about productivity as about what his next big project will
be. Another passenger car, a sports utility vehicle, a truck - or an aircraft? Twenty Diwalis since that
day in 1991, the group's businesses span all these - and holiday resorts, financial services and
defence. When he does not want to start from scratch - which he did with the Scorpio Utility Vehicle
in 2002 - he buys a company, as he did with the Reva electric car.
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Anand Mahindra on the new 'Rise' campaign
In the past four years, he has acquired Punjab Tractors (doubling M&M's share of the tractor market
and making it a global leader), Satyam Computer Services, Reva, two-wheeler maker Kinetic, and
South Korea's automaker Ssangyong.
Mahindra's goal seems to be global leadership for his group, which in 2010/11 reported a net profit of
over Rs 4,800 crore on sales of nearly Rs 37,000 crore. In 1991, group revenues are estimated to
have been around Rs 1,520 crore, based on a Prowess database search of group companies.
Keenly watching him will be the stock market, which has pushed up his flagship M&M's stock price
by 995 per cent since Mahindra took charge, despite two stock splits since 2005. In the same period,
the Bombay Stock Exchange's 30-share Sensex, which includes M&M, has risen 794 per cent.
In a report prepared after M&M's first quarter results, Mumbai brokerage Kotak InstitutionalSecurities upgraded the scrip to a 'buy', citing robust demand for both the Scorpio and Bolero utility
vehicles as well as the new Maxximo and Gio light commercial vehicles.
Mahindra's indigenous anti mine vehicle
Look back across some 16 years, and the picture was not
always so gung-ho. Mahindra's record on joint ventures has
been far from stellar. In 1995, hungry for partnership with a
multinational that would bring in much-needed technology and
management expertise, his group tied up with Ford Motor of
the US but the venture petered out in a few years after its firstcar, the Escort, flopped.
Since then, Mahindra has not had much luck with two other partnerships in automotives. M&M's
venture with Illinois, US-based Navistar International has not gained traction because of delays in
rolling out medium and heavy commercial vehicles and the competition from new, low-cost rivals
such as AMW, the Gujarat-based truckmaker.
PROFILE:The tweeting CEO
Mahindra Navistar reported a loss of Rs 186 crore last year. A bigger setback for M&M has been the
Logan, a mid-size sedan that is the offspring of its venture with France's Renault. The car flopped
and the partners parted ways after four years of friction.
We want to do to regional aerospace what our vehicles have done to rural
transport: Hemant Luthra
http://businesstoday.intoday.in/story/anand-mahindra-satyam-rise/1/18639.htmlhttp://businesstoday.intoday.in/story/anand-mahindra-satyam-rise/1/18639.htmlhttp://businesstoday.intoday.in/story/the-tweeting-boss/1/5154.htmlhttp://businesstoday.intoday.in/story/the-tweeting-boss/1/5154.htmlhttp://businesstoday.intoday.in/story/the-tweeting-boss/1/5154.htmlhttp://businesstoday.intoday.in/story/the-tweeting-boss/1/5154.htmlhttp://businesstoday.intoday.in/story/anand-mahindra-satyam-rise/1/18639.html -
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M&M is selling the remaining units as its Verito, while Renault is trying to make its mark in a higher
segment with Fluence. M&M's big non-auto joint venture, the one with British Telecom in software
services, forged before Mahindra Ford, had a reasonable run before BT reduced its stake in 2010 to
around 30 per cent.
Mahindra counts these setbacks among the invaluable lessons he has learnt. "Everybody enters a
joint venture with a what's-in-it-for-you-and-what's-in-it-for-me attitude," he says. "[Before the
venture with Ford] we had no experience in making a hard-top vehicle, or in modern methods of
manufacturing." And then he drops the punch line: "The 300 people who put the Ford Escort together
were the first ones to work on the Scorpio. It can be argued that we would not have been able to
make the Scorpio without the Ford joint venture."
When Anand Mahindra impressed alma-mater Harvard Business School
Even with the Mahindra-Renault JV, Mahindra believes that both companies have benefited from theexperience. The story of Scorpio, M&M's big-selling utility vehicle, is now a case study at Harvard
Business School, where Mahindra did his MBA in 1981. (He had majored in film-making and
photography from the same university.)
In addition to the learning from Ford, Mahindra knew he needed the right people for the Scorpio
project. He turned to Pawan Goenka, who had come from General Motors in 1993 as General
Manager for Research and Development but was on the verge of leaving.
Goenka, a specialist in engine technologies, was riveted by the audacious plan to develop a vehicle
from scratch in India and bought into Mahindra's dream. He spent the next few years learning otherparts of automotive technology and building a team of skilled young engineers.
In 2002, the Scorpio was born at a total project cost of Rs 550 crore. There were many remarkable
things about it. First, Indian companies were not known to develop their own vehicles. Second, it was
developed at a tenth of the cost that a large manufacturer would have incurred. And, the Scorpio has
become a platform, first for the Xylo in 2009 and then for the XUV5OO, slated for launch in India
and South Africa later this year.
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Mahindra acquisitions
2007In July, M&M buys 64.6 per cent of Punjab Tractors for about Rs 1,400 crore. Retains theSwaraj brand and turns the company around in two years. In 2008/09, just before it is merged
with M&M, Punjab Tractors reports a profi t of Rs 200 crore. The Swaraj brand has increasedits marketshare from nine per cent in 2007 to 12 per cent today. Overall, M&M had 42 per centof India's tractor market in 2010/11.
Selling over 202,000 tractors a year, it is the world's largest tractor company by volume. Farmequipment is the single largest contributor to M&M's revenues.
2008M&M buys an 80 per cent stake in Kinetic Motors' two-wheeler business for Rs 110 crore.This is run as a separate company - Mahindra 2 Wheelers. In 2010/11, the company had 7.6 percent of the scooters market, against 4.8 per cent the year earlier. Motorcycle sales have been
poor, but Mahindra 2 Wheelers is the fi rst Indian company to take part in the MotoGPmotorcycle racing series and has enjoyed some success in the 125cc category with ridersMarcel Schrotter and Danny Webb.
2009Tech Mahindra, which began life as a venture with British Telecom and later became theinformation technology business of the M&M Group, buys Satyam Computer Services in June2009 when the government puts Satyam on the block following revelations of an accountingfraud committed by its Founder-Chairman B. Ramalinga Raju. Tech Mahindra pays anestimated Rs 2,650 crore for a 51 per cent stake. Rebranded as Mahindra-Satyam, the newcompany declares a consolidated net profi t of Rs 225.2 crore for the April-June quarter of
2011/12, its fi rst since the takeover.
May 2010Mahindra buys a55.2 per cent stake in Reva Electric Car Co, most of it from Reva's (in thepic) promoter. It also brings in fresh equity. Even though Mahindra-Reva made a loss of Rs 28crore in 2010/11, Pawan Goenka, President of M&M Automotive, feels that M&M will benefi tin the long run from Reva's electric vehicle technology, and the acquisition will revive M&M'sown alternative propulsion projects. Mahindra-Reva plans to launch a new vehicle, NXR, soon.
November 2010M&M acquires a 70 per cent stake in South Korea's Ssangyong Motor Co for about Rs 2,100
crore, including bonds. It is the largest outbound deal by M&M, which now plans to introduceSsangyong vehicles in India in 2012, develop vehicles jointly, as well as use Ssangyong'smarketing and distribution reach in Russia, Latin America and Western Europe to realise itsambitions of becoming a global major. Ssangyong closed the 2010 Jan-Dec fi nancial year witha net loss of Rs 220 crore.
Other acquisitionsMahindra Systech has been acquiring automotive component and aerospace companies
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aggressively since 2003. Several were privately held fi rms and no values were given. Amongthem: Schoneweiss (axle-beam manufacturer, Germany); Jeco Holding (forgings, Germany);DGP Hinoday Industries (castings and ferrites, India); Falkenroth (forgings, Germany); StokesGroup (forgings, Britain); Amforge Industries (forgings, India); Plexion Technologies(engineering services, India); Metalcastello (castings, Italy along with ICICI Venture); SAR
Transmissions (gears, India); Engines Engineering (automotive, Italy); Gippsland Aeronauticsand Aerostaff Aircraft Manufacturing (aerospace, Australia).
Anand Mahindra with a Mahindra Navistar truck
The Scorpio "did wonders for the Mahindra brand in urban
India", says Mahindra. It also became the group's flagship for
expansion into new markets. It is sold in several West
European countries as the 'Mahindra Goa' and uses its Scorpio
moniker in Africa, where it can be found from Cairo to Cape
Town. It might be outsold by the older and cheaper Bolero in
India, but combined with exports, some 60,000 Scorpios were
sold in 2010/11. Though a plan to sell Scorpios in the US failed in 2010, M&M plans to make a fresh
push in the world's largest vehicle market with the Scorpio and the XUV5OO shortly.
More than just sales and profits, the Scorpio platform has given M&M a huge boost as value-seeking
customers turn to it. "In comfort, the Innova is far ahead for city driving but the Scorpio scores on
mileage and cost, as also service quality at dealerships," says Ravinder Chauhan, co-owner of Delhi-
based MS Engineering, a construction contractor with Indian Oil. Chauhan's family owns both an
Innova and a Scorpio.
Back at M&M, Goenka does not personally design vehicles anymore, but is the top dog for the
group's automotive and farm equipment businesses. One in two tractors bought today in India is
badged M&M after the 2008 Punjab Tractors buy, despite several international players - New
Holland and John Deere among them - having entered the market in the past few years. (See
Mahindra Aquisitions) Two joint ventures in China, one with Jiangling and the other with Yueda
Yancheng, have made M&M not just the second largest tractor maker in that country but also the
biggest in the world by volumes. In the US, it sells tractors made by manufacturers in South Korea
and Japan under its own brand. Next: Africa and global leadership.
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Giving Indians wings
Millions of utility vehicles and hundreds of thousands of tractors wearing the Mahindra badgedot the country's roads and farms, respectively. Will Mahindra one day similarly own theskies? In 2008, Systech, the components arm of the Mahindra Group, bought Australia-based
GippsAero. The Gipps Airvan, an eight-seater by GippsAero has had limited success since theacquisition, with about 60 planes sold last year. In 2007, M&M had bought Bangalore-basedengineering services firm Plexion, which had several aeronautical experts in its ranks. This ledto a 2008 tie-up between M&M and the National Aerospace Laboratories to build a four- tofive-seater aircraft, the NM-5. It is expected to take its first flight before the end of 2011. Theprototype is being developed at GippsAero's facilities in Australia.
Hemant Luthra, President, Systech, says the experience of making aircraft will also help it gainbusiness in the burgeoning civil and defence markets for aerospace components. AnandMahindra believes Indians would take to the skies in droves if flying became affordable. TheNM-5 achieves to do just that, with a target price of around Rs 2 crore. The catch? India's civil
aviation rules prohibit a single-engined aircraft from carrying four or more fare-payingpassengers. That is why the Airvan and the NM-5 are not in Indian skies as yet. But Luthra isconfident the rules will be changed, and Mahindra's vision of thousands of Indianscrisscrossing the country in small planes will come true.
We have appointed only six people from here in Ssangyong and the CFO
is the only top Indian there: Pawan Goenka
Each of M&M's automotive acquisitions over the last three
years was significant in its own way. Reva, the Bangalore
manufacturer of electric cars that it acquired for Rs 150 crore,is a technology play. "They have competent technology, a well-
regarded product and ambitious plans. But they did not have
the resources to go forward," says Goenka. The beginning has
been good. Soon after M&M bought Reva, the government announced tax breaks for electric cars,
something that Chetan Maini - whose dream Reva was - kept moping about but never got.
To be sure, there has been no such happy beginning for Mahindra Two Wheelers, the new name
given to Kinetic. While overall scooter sales doubled last year, they still account for just a fifth of
total two-wheeler sales in India. And, Mahindra motorcycles - the company launched five models,
including relaunches within a year - has not taken off even though the market is growing and thebrand is backed by Aamir Khan and Kareena Kapoor, actors known for their Midas touch in movies
and endorsements.
...we would not have been able to make the Scorpio without the Ford joint
venture: Anand Mahindra
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In a recent interview to a television channel, Mahindra agreed that he came into the market with the
wrong product, but vowed to strike back with a relaunch soon.
The really big bet at M&M is being played out in Seoul. China's Shanghai Automotive Industry
Corporation, or SAIC, had acquired 49 per cent equity in South Korea's Ssangyong in 2004. But
sales collapsed as fuel prices shot up, emission standards in its export markets became stringent, and
the global financial crisis erupted.
Faced with strikes and unable to cut costs, Ssangyong filed for bankruptcy in January 2009. SAIC
diluted its holding to 3.79 per cent in July next year. When M&M first announced its intent to
acquire Ssangyong, it was not without reason that its shares fell. But unlike Tata Motors' acquisition
of Britain's Jaguar Land Rover, or JLR, in 2008, which took time to turn operationally profitable and
left Tata with a pile of debt, the Ssangyong deal was smooth.
The target was free of debt, its operations profitable and it trimmed its workforce before M&M camein. And M&M paid $463 million - some 60 per cent less than what SAIC had paid in 2004.
Now, Mahindra's task is to win over the unions. "We have appointed only six people from here in
management roles in Korea, and the chief financial officer is the only top Indian executive," says
Goenka. The idea is to get the Ssanyong employees to believe in themselves. Of the 120,000 vehicles
Ssangyong produced last year, 65 per cent were exported. But it is not just entry into new global
markets, M&M will also develop all major platforms in the future with Ssangyong and plans to start
selling products from South Korea in the Indian market next year.
As Mahindra strives to get Ssangyong back on the rails, he can take inspiration from his success withSatyam Computers. Tech Mahindra, the Mahindra-BT joint venture, won Satyam in an auction by the
government, which had taken control after Founder and Chairman Ramalinga Raju was accused of
overstating key financial numbers. Mahindra had actually reached out to Raju just weeks before the
scandal broke. "He did not respond," he says, tongue in cheek, "for now very-well-known reasons."
We took difficult decisions at Satyam but we made sure that everybody
was kept informed: Rajeev Dubey
Apart from dealing with tax issues, handling employee morale
at Satyam was the biggest challenge. As Rajeev Dubey,
M&M's head of Human Resources, says, Satyam employeeshad no idea what the future was going to be. "Yes, we had to
take some difficult decisions, but we made sure that everybody
was kept informed; communication was vital." No one will talk
about it, but the next step in harvesting synergies among the
Mahindra group tech businesses is to combine Tech Mahindra and Mahindra Satyam in the future.
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A management consultant who has worked with Mahindra closely says he has not seen an Indian
businessman with "a better left brain, right brain" combination - creativity in business combined with
a feel for numbers. In 2000, when Indian groups started buying global assets, the Mahindra group
was much smaller, with revenues of about $1 billion. "Not only was he smaller than the Tatas or
Birlas, his family's shareholding in group businesses was relatively low making him more vulnerable
than them," says the consultant. The consultant, who works at a US management firm, requested he
not be named.
This explains the heightened sense of caution with which M&M goes after acquisitions, especially
those with a higher degree of risk or of a size that may be difficult to digest. An example is the
group's decision to drop out of the race to buy JLR.
The Tatas, who had deeper pockets, bagged it. A strategy Mahindra uses to pare risk is to rope in
private equity, as in M&M's acquisition of Italian auto component maker Metalcastello along with
ICICI Venture. So too, it acquired Australian airplane maker GippsAero along with Kotak PrivateEquity.
A takeover tycoon he may be, but Mahindra is not done with entering new areas on his own. Looking
at the promise in defence equipment, M&M has developed an urban patrol vehicle, the Marksman,
based on the Scorpio. Kutub Hai, a former Brigadier, who is the Chief Executive of Mahindra Land
Defence Systems, a joint venture with British Aerospace, says the company can hope to get up to 20
per cent of the $100 billion defence market in the coming decade.
The rise campaign
Rising to the topHow Mahindra's 'Rise' campaign came to fruition
In mid-2009, Scott Goodson, the founder and creative headof StrawberryFrog, a boutique American advertisingagency, met Anand Mahindra in Mumbai. Mahindra hadappointed Global Vehicles as distributor for its Scorpiosports utility vehicle in the United States, and Global had
roped in StrawberryFrog.
Goodson, who specialises in 'movement marketing', wanted to understand what Mahindra &
Mahindra was all about. He had been surprised by what he found. Most Mahindra's managers,he noted, felt they were working for a higher purpose but seemed unable to articulate it.Goodson told Mahindra boldly, "You yourself do not understand what kind of company youare running."
Following months of research and interviews with all stakeholders, the 'Rise' slogan was born.It emphasised three core principles - accept no limits, think alternatively and drive positive
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change.
But Mahindra wanted this to be more than an advertising campaign. "Our core purpose earlierwas to prove that Indians are second to none," he says. But later M&M, having acquiredthousands of employees in Germany, Korea, China and elsewhere, needed to redefine this.
Mahindra admits that not every employee will buy the 'Rise' idea. Surprisingly, employees ofMahindra-Satyam were the biggest supporters of 'Rise', presumably because they had suffereda serious identity crisis when their company's founder perpetrated a scam.
Ironically, Mahindra's plans for a US launch were scuppered by legal issues with GlobalVehicles. So while StrawberryFrog never got around to doing the advertisement it wasintended to do in the US, it has done a massive campaign in India.
Even more bullish is Hemant Luthra, President, Systech Sector, who heads the group's component
side and oversees the entry into aerospace. In 2007, he masterminded the acquisition of Australia's
GippsAero, which makes small commercial aircraft. Luthra has also taken the company into a joint
venture with National Aerospace Laboratories, Bangalore, to develop a small aircraft.
Scheduled to take to the air soon, it is expected to be priced at Rs 2 crore. The cheapest such offering
in the market today costs Rs 5 crore. "We want to do to regional aerospace what we have done to
rural transport," says Luthra. Mahindra shares his vision of scores of small planes taking off from
towns across the country, with fares slightly higher than the highest railway fares. That would fit in
with M&M's new campaign: 'Rise - No Limits, Positive Change, Alternative Thinking' .
Mahindra's 360-degree view of life - he has 350,000-plus followers on Twitter and adds 2,500 every
week - had management thinker C.K. Prahalad, about a year before he died in April 2010, dub his
sprawl of businesses 'Fortress Mahindra', an empire that spans not just a hundred countries but has
valuable links in multiple industries.
Despite aggressively expanding the contours of his conglomerate - he prefers to call it a federation -
Mahindra, now 56, makes you feel that he has not really forgotten the day he was confined to his
office 20 years ago. "When you have stared down the abyss, you get a sort of confidence," he says.