Mahindra Group subsidiaries turn to analytics for better performance

Mahindra & Mahindra, Anand mahindra In a change of tack, the $20.7 billion Mahindra Group, which till a few years back was spreading itself thin by getting into newer businesses, is now focussing on consolidating, scaling up and turning around the underperforming businesses, Anish Shah, president, strategy, Mahindra Group told Business Standard. Having exited the bleeding businesses like mass two wheelers and retail, the group is now turning to artificial intelligence, block chain, virtual reality to enhance efficiency and reduce costs.

The strategy seems to be paying off and investors in Mahindra subsidiaries have reaped benefits. Driven by the strong performance of M&M, that houses the automotive and farm equipment businesses, the combined market capitalisation of listed Mahindra subsidiaries including M&M, EPC Industries, M&M Financial Services, Mahindra Holiday, Mahindra Lifespaces, and Mahindra Logistics, has risen to Rs 13,05,260 million at the end of fiscal 2018, up from Rs9,44,169 million at the end of fiscal 2016.  

Sales turnover of top 19 subsidiaries of Mahindra and Mahindra that have an annual turnover of over Rs 5 billion, rose 24 per cent to Rs 5,54,708 million in fiscal 2018 as compared to Rs 4,46,590 million in the fiscal that ended in 2016, according to company’s latest annual report.  Net profit in same period also rose 41 per cent to Rs16252 million.

“There has been a phenomenal improvement in the performance of companies,” said G Chokkalingam of Equinomics. Others said it needs to do more.  'It’s an unfinished agenda,' said Mahantesh Sabarad, head of retail research, at SBICap Securities. There are still concerns regarding capital allocation and inter group transactions, he added. 'There’s scope of untangling holdings and simplifying the structure through mergers of entities that have similar interests,' he added.

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Shah pointed out that investor concerns regarding the group “spreading itself thin” have disappeared since the last couple of years.  “The reason being, few of the businesses that were bleeding have been taken care of,” he said citing instances of the two-wheeler and retail business. Mahindra sold Mahindra Retail which ran offline under the Babyoye brand to online baby product seller, Firstcry, for about Rs 3.62 billion in October 2017. Unable to gain a toe hold in the competitive two-wheeler market, the Mumbai-headquartered firm quit the mass market in September 2017 after merging Mahindra Two Wheelers with the parent company in 2016. It entered the segment in 2008 with the acquisition of now defunct, Kinetic Motors.

Scaling up sub-scale businesses have also been part of the consolidation strategy, said Shah pointing out to Mahindra Trucks and Buses, which was merged with the parent company in August 2013, after Mahindra bought out the stake of Navistar Inc. The unit broke-even for the first time in fiscal 2018 on back of a strong demand in the heavy-duty truck market. 

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“Going forward, I would say, some of our small businesses that are small and mid-size, needs to be bigger. Many are on that path,” said Shah referring to group’s logistics arm that has been gaining momentum after its initial public offering in October 2017 and solar business which has started looking up. Sales turnover of Mahindra Logistic arm rose to Rs32248 million in fiscal 2018 up 24 per cent over Rs25997 million in fiscal 2017, while net profit increased to Rs622 million from Rs448 million.

The fact that the group hasn’t got into too many new businesses over the last three years, has also helped. “Our focus has been to stay with the core strength, consolidate, wherever it makes sense,” said Shah pointing out that while Mahindra is open to looking at an opportunity, it will be guided by whether “it can win.”

Meanwhile, over the last four years that Shah has been with Mahindra, his focus has been to ensure that group’s businesses embrace technology through effective deployment of block chain technology, artificial intelligence (AI) and virtual reality. For instance, with the use of an AI engine, which has been developed by a US-based Israeli firm which also offers a similar solution to Harley Davidson, some of the consumer facing firms of the group including Club Mahindra and company’s auto sector, has been able shave off significant cost per sale (CPS), said Shah. M&M was able to achieve a 75 per cent reduction in the CPS over the original (in the total digital marketing spend) on the XUV5OO. Similarly, Club Mahindra has also been able to pare its CPS for international sale by 20 per cent. Shah and his team are now in the process of helping the M&M’s auto division with virtual reality showrooms.

They are also working with Mahindra Financial Services to launch a supply chain financing business-- a new business, based on block chain technology which in turn will help the financing arm to reduce the funding time for short term bills for Mahindra auto component suppliers and result in improving the revenue by a fourth. The move to digitise the businesses and make them technology leaders dovetails with the broader group philosophy of “Future Rise—a creative expression of innovation launched last year, said Shah.