Farm machinery for us is a very important focus area. We are growing 30-35% a year in that space.
Let me come to your group gems.
Aeros structures is a business that we would like to grow 15 to 20 times in this decade. I started with a very good starting point which was the culture of the group, the people in the group.
If you have to set your group some goals over the next 5 years, what would they be? What are the changes you think you have brought after you've come? The vehicles have got a certain style, a panache. What do you look at before you say okay this works?
We want the Mahindra group to be among the top 50 most admired companies in the world.
Dr. Anish Shah has many firsts. He is the first non-family head of the Mahindra group and I guess he's the first CEO that I know who has doubled the group's revenues in the 5 years since he has taken over, increased their profits 10x and the market cap of the group by 13x in the 5 years that he has been at the helm. Dr. Shah is our guest on our ongoing series LTA and the leaders. Dr. Shah, thank you very much for joining me. It's a pleasure being here with you.
Well, I know it's a rush day for you, but let me start at this position itself. When you joined as CEO, you know, 5 years ago, no one thought that Mahindra would be where it is today. I mean, it was a respected third player in the industry. Now, when you think of SUVs, it's actually the market leader in a sense. What exactly did you do different that you could drag the company and the group up in the five years?
I would want to start by saying that the foundation was very strong for us. So it wasn't as if we had to do a lot of things different. The foundation actually started with Mahindra Research Valley being established almost 25 years ago, and that proves to be so valuable for us today. With Pawan at the helm of the auto business for many years, a number of things were done in terms of getting the right talent in place, setting up the right processes, all of those things we're benefiting from right now. And with Rajesh coming in as CEO for the auto and farm businesses, he's made a huge impact. His ability to understand the market well, to define what products need to be done, and to create a different approach to marketing has made that difference. We also benefited from what I call doing less. By doing less, focusing on a few key areas that really matter, allowing us the bandwidth to execute flawlessly. And our team came in and did a fantastic job with a number of leaders from design, product development, sales and marketing. So I think a lot has gone into our success.
I agree. Of course the point is you energized people as you say your capital allocation strategy, doing less but doing it well. Tell us a little more about capital allocation. You closed down Sangong, you closed down some JVs. How will your capital allocation look going forward by the lessons you have learned?
So it was important for us to first exit a few areas that were in some cases never going to be profitable because it was not just about the profit or loss. It was also about the management bandwidth that was being dedicated to those areas. So it freed it up. So it's more of capital and time allocation. They go together.
Once that phase was done we pivoted to growth. And today we are even accelerating that further. We encourage our businesses to come up with bold plans. We tell them think big, but think in a way where you're doing less to focus on things that you can do well and execute flawlessly.
But in your various verticals, if you have to speak about capital allocation over the next 5 years, where would your allocation be?
We now call it time allocation more than capital allocation because we have enough capital. There is a large amount of cash that we have, we are at zero debt. So from that standpoint, there is enough. It's about can we win in a marketplace, do we want to play in that space, and let's not do things that are small. So that's how we think about it right now. Businesses that can come up with plans that make sense, where they have the ability to execute that well, we go forward with that. And we are seeing a number of our businesses now grow at multiples. Over the last 5 years, when we think about growth for that decade, that is going to be pretty significant.
You know why I was asking you that: now we've got another big area in finance. You have not just got an NBFC, mutual fund, insurance. Will finance be a big vertical?
Finance is a big vertical today and it's a business that had been built very well. There were a few years where we weren't quite up to the mark with our peers. But over the last 3 years, a lot of work has gone in to improve asset quality, use technology and data to improve processes, create a better customer experience, and set the business up for success. And we are now pivoting to growth and we feel that will be a huge growth driver for us as we go forward.
There were some analysts who were saying that this is two consecutive good monsoons and Mahindra Finance does well.
You're sure it is on a sustainable path?
We've seen multiple good monsoons in the past as well. Mahindra Finance by various different metrics is in a much, much stronger place right now and is very well positioned for the growth path that we want.
Anything more you will want to add in finance or you have now covered everything, mutual funds, insurance?
The business needs to diversify beyond auto lending, farm lending. There's some element of SME today, some element of mortgage. But mortgage needs to grow much faster, and we are looking at various different parts of the mortgage market as well. SME we've got some key strengths there, and we're looking at expanding that again in a way that leverages our strengths as a Mahindra group that is secure and stable. That's part of the diversification that will help build a stronger Mahindra Finance in future.
Anything on broking? That's the only angle that you have not covered, a securities company. You're not interested.
Not interested because we are starting with our customer. Our customer is in semi-urban India, rural India, some in urban India as well, and what are their needs? This business is today a very strong player in semi-urban and rural India, and we're going to take advantage of that, capitalize on the trust we have with customers to be able to offer them a wider set of products. So we're going to start with where the customer is, what they want, and essentially try to fulfill that.
You're absolutely right. You've focused so much on rural semi-urban. You're not just a metro SUV company at all. As you told me, only 14% of your total revenues come from SUVs. So let me look at the other part, tractors. Will you demerge? I mean, we are in the world of demerger after the Tatas have demerged their series. Will you think of demerging tractors and even for that matter series? Now SML is Mahindra SML. The deal is done. Will you demerge these, list them separately?
This is a question that comes up on a very regular basis. And it began 5 years ago when I got into the role. My message always has been: our focus right now is operational and organic growth. Once we feel that we have achieved that very well, then we shall look at structuring options. At this point, structuring just takes away from the focus that we need on the businesses. While we have grown organically 25% a year for the last 5 years, we still feel that we need to maintain that focus and continue to grow. Once we do that, we shall look at structuring at some point in future, whether that's 3 years away, 5 years away, 10 years away.
Okay, then we don't have to worry about it now.
What about tractors? Since you said operational, tractors has done brilliantly well. I mean, you are unquestioned leaders, and the latest numbers 32% higher in the numbers that you just announced. Will you look at other farm mechanization?
Yes, because farm machinery for us is a very important focus area. We have been talking about that for some time as well. We are growing 30-35% a year in that space. It's not an easy space because it's unorganized today. There is a large set of products, some of them fairly subscale. But we are going in with a very good team. We've developed a very good set of products. Some of the international acquisitions we had made have helped us build a better set of products for India because they had to be customized for India. With that, we feel that farm machinery will play a much bigger role in our farm business going forward.
Is there anything you will want from the government on that? Because the government is all out to help the farm community. Does policy need to tweak?
The government has essentially enabled growth in these areas, and it is just for us to execute and go forward.
Now the other area in which I was full of admiration for the Mahindra group is the way they went into Mahindra holidays. It was really an ahead of the curve decision. Now Indians holiday in their teeming millions. Do you think you have not really developed it considering that you were ahead in the field? Will you continue to be in that space and develop it further, or will you want to give up that space because hotels and tourism has grown so much?
We have 100 resorts in India. We have a set of members who when they go to the resorts are really happy going there. In the past we've had some challenges where members could not get the bookings they wanted, but that has been largely fixed now. And we've got huge growth potential.
So you stay put with it or do you go into other?
We will look at transforming this business and growing at a much more rapid pace. More on that at our investor day, but this is one that we are going to look at doing a lot more with.
Okay, clearly because that's the booming industry in India.
Okay, let me come to your growth gems. You have aerostructures, you have defense you call it security solutions now. What were your plans 5 years ago, and have all these, I think even lifespaces, achieved your self-set targets? They're all your gems, right?
They are all our gems. We had said we should look at a billion dollars of market cap and then a 5x growth after that. These businesses have done remarkably well. If you look at the key metric for lifespaces which is pre-sales, the plan for this decade is to grow pre-sales 14 times, and we are a little more than halfway through this decade, and we've already gone halfway past what we need to do. With regard to the land that we need to launch everything to hit our targets for 2030, about 80% of that is acquired already, so it's just pure execution from here on. Aerostructures is a business that we would like to grow 15 to 20 times in this decade. Yes, these are off small bases, so the multiples get them to a much larger scale. The business is very much on track. It is driven by quality, and we are regarded as one of the highest quality suppliers even in comparison with some of the large suppliers around the world. That's what's driving the growth. As we look at our Accelo business, that's doing very well from an auto recycling standpoint as well as a few other areas in energy components. Sustain from a renewable standpoint has done remarkably well in terms of growth. The initiatives we put in place will enable us to develop and sell to the InvIT, which will also mean efficient use of capital. So we're seeing some very meaningful outcomes from these growth gems. At investor day we will share some numbers from a latest valuation standpoint, and we will see that they have contributed quite significantly to Mahindra over the last 5 years, and we look forward to an even more significant contribution through the rest of the decade.
