In 1945, Mahindra and Mohammed established their first venture, which has fructified into a great empire over the years. The company was renamed Mahindra & Mahindra Limited (M&M) in 1948. Steel trading business also commenced, in association with suppliers in the United Kingdom, in 1949 with a jeep assembly business. In 1953, the group established Otis Elevator Company. Technical and financial collaboration commenced with Willys Overland Corporation that assembled jeep type vehicles and which came into the picture in 1954. The company’s shares were listed on the Bombay Stock Exchange in 1956.
The Mahindra Group’s Automotive Sector is in the business of manufacturing and marketing utility vehicles and light commercial vehicles, including three wheelers. It is the market leader in utility vehicles in India since its inception, and currently accounts for about half of India’s market for utility vehicles. Although created in 1994 after an organizational restructuring, the Automotive Sector can trace its antecedents back to 1954. The iconic jeep that led the American GIs to victory in World War II is the very same vehicle that drove the Mahindra Group to success in the Automotive Sector. Mahindra & Mahindra Limited, the flagship company of the Group, was set up as a franchise for assembling general-purpose utility vehicles from Willys, USA.
The Mahindra Group exports its different products to several countries in Europe, Africa, South America, South Asia and the Middle East. Over the years, the Group has been able to develop a large product portfolio catering to a diverse customer base such as rural and semi-urban customers, defence requirements and luxurious urban utility vehicles. In 2002, the company launched an indigenously engineered and developed world-class sports utility vehicle, Scorpio, which bridges the gap between style and adventure, luxury and ruggedness, and performance and economy. The company continues to be a leader in the utility vehicle segment with a highly diverse portfolio including mass transport as well as new generation vehicles such as Scorpio, Bolero and the recently launched Xylo.
Mahindra & Mahindra’s entry into the three-wheeler segment with the Alpha and Champion has also enabled it to occupy a leadership position in its category. The international operations of the Automotive Sector focus and contribute to the promotion of the international business. Mahindra Renault (MRPL) launched Logan, India’s first wide body car, sporting a host of class-defying features at an aggressive price against competitors. The Logan has helped in redefining its segment in terms of spaciousness as well as performance and technology with the latest generation. The product has been specially designed for the Indian market by incorporating contemporary styling features and a design suited to Indian road conditions. Mahindra Navistar Automotives Ltd (MNAL), a joint venture between Mahindra & Mahindra Limited and International Truck and Engine Corporation, will manufacture trucks and buses for India as well as export markets. It will also provide component sourcing and engineering services to International Truck and Engine Corporation. Mahindra Navistar (MNEPL) is a second joint venture agreement with Mahindra & Mahindra Ltd that focuses on producing diesel engines for medium and heavy commercial vehicles in India.
In 2010, SsangYong Motors of South Korea, which has competencies in sports utility vehicles (SUVs), has picked Mahindra & Mahindra as its preferred buyer. This is not the first time that Mahindra & Mahindra has tried to acquire a marquee global SUV brand. It was also in the race to acquire Jaguar-Land Rover, but was beaten to the post by Tata Motors. SsangYong may be a small player in South Korea with a market share of just 2 per cent, but it has in its portfolio SUVs such as the Rexton, Actyon and Kyron. It has 138 dealers in its home country and another 1,300 spread across 98 countries. This is something that would have taken Mahindra & Mahindra about five years.
It is important to note that SsangYong was neck deep in debt—$640 million long-term paper as on 31 December 2009—but Mahindra & Mahindra feels the situation has not gone out of control. The bid price has not been disclosed. Mahindra & Mahindra has cash reserves of ` 2,500 crore on its books, and its debt is less than a third of its equity capital, which leaves a lot of headroom to raise money. ‘We can almost double the debt without affecting our credit rating,’ says Mahindra & Mahindra President (finance, legal and financial services sector) Uday Phadke. There can be no room for error. SsangYong, after all, is critical in Mahindra & Mahindra’s strategy to become a global player in utility vehicles (SUVs, multi-purpose vehicles and pick-up trucks).
Footprint Global
Mahindra & Mahindra is the largest player with almost 60 per cent market share in the Indian market for utility vehicles. It is not only difficult but also quite challenging to grow the share any further, and, therefore, the company will be more than happy to at least protect it. Moreover, utility vehicle sales as a proportion of the car market had remained around 17 to 18 per cent for some years. However, in the other countries, the uptake of utility vehicles happens to be much larger in its share. Therefore, the strategy to grow in this segment of the market lies in expanding export potential. The current prevailing trends in the global automobile market, according to Goenka, are favourable for such a strategic move. Buyers look forward to utility vehicles at low prices but with high fuel efficiency. Above all, there has been a basic shift in favour of growing demand for environment-friendly vehicles (hybrid and electrical). The automobile exports from India in the days to come, by both multinational corporations and Indian companies such as Tata Motors and Mahindra, is likely to grow substantially in the coming years. Therefore, the company is working on a diesel hybrid (the budget is ` 200 crore) to improve its brand equity in the clean technology space. The acquisition of Bangalore-based Reva Electric Car Company has added an advantage to the company’s capabilities in the field of electric engines:
‘We want to develop new products, and have a range that is as wide as, if not bigger than, any player in the world,’ says Goenka. However, their rivals have an opinion that Mahindra & Mahindra’s pace of new launches has not been too inspiring so far. This is evident from the company taking almost seven years after the Scorpio to launch the Xylo in 2009. Mahindra & Mahindra’s Chief Executive (technology, product development and sourcing) Rajan Wadhera says that as many as seven new platforms are in the works, which will all be rolled out by 2016. This may lead to expediting the pace of coming up with new launches in the coming years for both Indian and global markets. Price continues to be the USP of Mahindra & Mahindra, though not the only one, insist Goenka and his men.
‘The idea is to leverage the dominance in the Indian market for global opportunities,’ adds Mahindra & Mahindra Chief Executive (automotive division) Rajesh Jejurikar. On the issue of selling at a loss to gain market share, Goenka says, ‘We are very focused on financial results. We will not do anything that is not financially prudent.’ However, for overall portfolio, there will always be some loss leaders, and there will be some cash cows. The company will attempt to have a right balance between the two.
At present, overseas sales account for just 5 to 6 per cent of Mahindra & Mahindra’s total volume of sales. It has an export presence in the Indian subcontinent, Africa, South America and Europe. However, in case a company wants to give it a jump to export sales, it has to enter into the United States, which accounts for almost 47 per cent of global car (utility vehicles included) sales. For this, the company had signed an agreement with Georgia-based Global Vehicles in 2006 to distribute its vehicles there. However, Global Vehicles has gone to court, saying that Mahindra & Mahindra has still not delivered its vehicles, which has, in turn, jeopardized the $35 million it has invested to sign on 350 dealers. These dealers, the company has alleged, have invested another $60 million in Mahindra & Mahindra for the purpose. The company has also made an appeal to seek protection from the courts against any attempt by Mahindra & Mahindra to drop the 10-year agreement and appoint a new distributor.
Mahindra & Mahindra’s automotive and tractor businesses were brought together and placed under Goenka in April 2010. The purpose was to drive maximum gains through synergies between the two. The company has also merged its development and sourcing functions, as the technical expertise required for both the product categories is the same. By bringing it under one umbrella, there could be osmosis of ideas and innovation between the two. A similar advantage would accrue in terms of raw material purchase, as more than half the 500-odd vendors for the two lines are the same. Combined orders will certainly help the company in bringing down prices. In overseas markets, the same office now takes care of tractor as well as utility vehicles sales. Similarly, in the domestic market too, the 1,300-strong dealer network for tractors will also become touch points as well as service centres for utility vehicles. Club Mahindra Resorts will also help in promoting sales by showcasing the company’s SUVs. Films made by the group will help in promoting these vehicles. Its IT companies, Tech Mahindra and Mahindra Satyam, will help in providing software solutions. Above all, Mahindra Finance finances almost a third of all Mahindra vehicles sold in the country, which provides an added edge in the market. All these efforts, according to Goenka, are likely to result in saving up to 1.5 per cent of its costs through the various synergies that would further push the bottom line. All these efforts will also give a push to the sales as well.
The present company’s sales of utility vehicles in India is around 200,000 per year. The company realizes that high volumes in the domestic market are an important prerequisite for the success in overseas markets. It would help the company in recovering the development cost. ‘We can’t develop a product unless we sell in large volumes in India. Otherwise, the development cost is not justified. We cannot recover it by selling a few hundred,’ says Goenka. Therefore, strategically, the company has laid a distinct emphasis on dealer development in India.
The company promises 25 to 30 per cent return on investment (excluding real estate) to the dealers. Most of the dealers recover their investments within three to four years. The company has also launched a new programme called ‘Gurukul’, under which its experts help their dealers to work out ways and means to improve their profitability. At the same time, the company plans to expand its network of service stations that would provide easy accessibility to customers for getting their vehicles serviced within a vicinity of 50 km. The company has already achieved this target for 85 per cent of the country
Mahindra & Mahindra wants to become a leading player in the small commercial vehicle segment (0.5 tonnes to 0.75 tonnes) in India along with utility vehicles. Although it does not have any global ambitions for the same, it does have interest in some pockets outside the country.
The company has four products in this category (three-wheelers Alpha and Champion and four- wheelers Gio and Maximo) and is the fourth-largest player after Bajaj Auto, Tata Motors and Piaggio. The greatest strength of the company lies in it possessing indigenous technology. This has enabled the company to develop the Gio for as little as ` 25 crore of investment. However, such a strategy could be played by others also in the market, particularly in view of the fact that this segment is growing much faster than the 12 to 13 per cent annual growth. For example, General Motors has plans to use the expertise of its Chinese partner, Shanghai Automobiles, to launch a similar vehicle in India. The technology is the driving force in the industry, and there are really no entry barriers as such. The company is confident that it can grow its market share from 15 per cent now to 25 per cent or even 30 per cent in the coming years. However, the fact remains that there will also be intense competition. The company’s share at present in different Indian automotive markets is as follows:
Company the of Plans Commercial
Mahindra & Mahindra has also plans to capture a slice of the large commercial vehicle market (3.5 tonnes and above) in India to begin with and subsequently in the overseas market. This segment of the market has grown by 6 to 7 per cent per year during the last 10 to 15 years. Although not a very high growth, this is certainly a consistent one. India has the third-largest truck market in the world. The company has formed a 51:49 joint venture with Navistar of the United States. Other than North and South America, this company is free to sell its products anywhere in the world. The company has opted for a joint venture route, as it did not have a technology for large trucks. The joint venture does not have plans to procure Navistar products to India. It is in the process of developing new products from scratch on its own. The first truck priced at ` 14.99 lakh is expected to hit the market soon. Although the cost of the truck is costlier than current products in the market, the company is clear that their product is distinct with a different value proposition, as it would provide more engine power, better fuel efficiency and better cabin space. It is interesting to note that at the time when Mahindra & Mahindra got into the joint venture, there were only two others to contend, namely Tata Motors and Ashok Leyland. However, now the market is crowded with Volvo and Mercedes Benz also in the race, thus implying the market potential in this segment. There is going to be a similar push in the buses segment also in the coming years.
The company has even entered into the market of scooters that could be a precursor for motorcycles. India is the largest motorcycle market in the world. However, the two-wheeler market is very tough to enter into because of intense competition and strong players such as Hero Honda, Bajaj Auto, TVS, Honda, Suzuki and Yamaha operating for the last very many years. The market has been very thinly shared by the existing players, which poses a great challenge for differentiation.
It is certainly not easy to enter. Informed sources in the company say that although Mahindra & Mahindra will sell scooters in the top dozen or so cities, its motorcycles will be mass marketed. The company is planning to come up with a complete product range from ` 35,000 to ` 100,000.
The issue that arises is about the Logan with Renault exiting the venture. It would be fully owned by Mahindra & Mahindra. The company was not in core business of car manufacturing and, therefore, its portfolio will not be expanded in the near future. However, the company appears to be clear in its strategy when it says that the Logan will get a new model every two years or so, although the rights for the Logan hatchback are with Renault. The company proposes to reposition Logan as a fuel-efficient car through two new television campaigns in the near future. The company is clear that greater emphasis on cars would spread its resources too thin, which would not be a worthwhile proposition. However, a question arises as to whether the company has examined the possibilities and potential in the car segment. As such, the car market in India is growing fast, and it is becoming one of the most exciting markets for small cars. The management of the company says that the car market is not in their immediate priority, although they are not saying that they will never do cars.
The financial performance of the company as per the director’s report for the year ended 31 March 2010 reveals that the company on a total sales of 236,759 vehicles and 45,360 three wheelers as compared with 161,882 vehicles and 44,806 three wheelers in the previous year had registered a growth of 46.3 per cent and 1.2 per cent in vehicles sales and three-wheeler sales, respectively. The company had sold 227,114 vehicles in all constituting 214,128 multi-utility vehicles (MUVs), 3,722 small four wheelers 0.75 Ton cargo and 9,264 mini four wheelers 0.5 Ton cargo in the domestic market. This has resulted in a growth of 47.8 per cent over the previous year’s volume of 153,654 vehicles including 153,653 MUVs and 1 Light Commercial Vehicle (LCV). However, a sales volume of 44,438 three wheelers was lower by 0.2 per cent as compared with the previous year’s volume of 44,533 three wheelers in the domestic market. The company’s MUV sales volumes grew by 39.4 per cent as against the industry MUV sales growth of 26 per cent in the domestic market. The company strengthened its position in the domestic MUV segment by increasing its market share to 63.3 per cent compared with the previous year’s market share of 57.2 per cent. Xylo been very well accepted in the market ever since it was launched in January 2009, as evident from a total sales of 27,978 Xylos during 2009–10.
In spite of difficult overseas market conditions on account of the overall downturn, the company achieved superior growth by selling 10,567 vehicles including 1,323 vehicles sourced from MNAL and 922 three wheelers in the overseas market during 2009–10 as compared with 8,501 vehicles including 693 vehicles sourced from MNAL and 273 three wheelers in the previous year registering a growth of 24.3 per cent. Spare parts sales stood at ` 514.96 crore (including exports of ` 22.4 crore) during 2009–10 as compared with ` 362.75 crore including exports of ` 27 crore in the previous year, thereby registering a growth of 42 per cent.1
1. What is the market niche that Mahindra & Mahindra is focusing on? Does it make sense to continue with the same niche market? Critically comment.
2. What market segmentation and positioning strategy is being operated by Mahindra & Mahindra? Comment on the marketing strategy of Mahindra & Mahindra.
3. What are the future plans of Mahindra & Mahindra to expand its market? Is it prepared for the same?
4. Prepare a market plan for the expansion of the business for a company.
5. What specific strategies would be effective in achieving predetermined goals and objectives as identified by one?
6. What has gone wrong strategically with the launching of Logan in association with Renault?