We are good to surf any wave in the automobile market: Anand Mahindra

Anand Mahindra: First of all, we are not complaining. It has been a long time coming. The industry has been through a rough patch as you know, so we are very grateful that the market is looking up. I believe the proverbial tipping point has been reached or is about to be reached. The tipping point really refers to motorisation rate in an economy. There is a theory in the industry worldwide that when you get to a certain per capita level, sales of automobiles take off and that's what's happening. So, as far as we are concerned, the good news is that during the meltdown, we never stopped any of our product-related expenditure or our capex or our new products, which were in the pipeline. We also have a brand new plant, a new capacity coming on stream in Chakan. We have a new R&D facility coming up next year, so we are good to surf any wave in the automobile market.

You like to call your group a Federation of Businesses. You have automobiles, tractors, IT, retail, infrastructure and aerospace, so what's next? Is entertainment on the anvil since you are a film buff yourself or may be telecom, what's the next big diversification for your group?

Anand Mahindra: Well, I am glad you are asking what's next, usually I get asked, 'is not that enough?' So I am happy that people are wondering what is next. We have a very full plate right now with aerospace, which is the newest kin on the block if you will. We also have Mahindra Partners, our in-house private equity wing so to speak that is nurturing some new businesses, which are hopefully going to become big businesses. So, we have a full plate, but as I mentioned to you the last time we met, the wonderful thing about India today, the new India is that there is a huge amount of interest from all over the world, so the deal flow is incredible. And yes, almost something new comes in the front of you everyday, so we are being very judicious now about what we look at and what we don't. But certainly if you ask me a question, what could be a new area for opportunity, it is in renewables, renewable energies and we have no concrete plans at the moment. So, I cannot give you any breaking news on that front but if you push me as to what we would look at seriously, it would be in the area of renewables.

Could you give me a little more hint about what exactly you mean when you say renewable energy?

Anand Mahindra: The hint is not something that's very clandestine because sometime back in your very own group, in your newspaper, I wrote an editorial on solar power and how I felt India really could be the Saudi Arabia of solar power and so that's an area of interest to us but beyond that as I said there is nothing I can tell you as to what concrete steps we have taken, but it is within the renewables field, solar is a very strong area of interest for us.

Wind and other areas?

Anand Mahindra: I leave it at that for the moment.

The U-paid settlement has come around $70 million. Are you satisfied with that and there was some talk about investors of Upaid not being terribly happy with that settlement. What's the take on that?

Anand Mahindra: We have gone public and transparent with the amount of data that we needed to provide since these things are still in the process of being wound down. It would be inappropriate for me to comment at this stage on any of the issues you discussed. Yes, of course, there is a settlement, but I would rather let it finish its due process rather than commenting on it, that would be unwise of me at this stage.

What about the class action suits, they also seems dusted or put away?

Anand Mahindra: Now once again the class action suits are all as the classic Indian phrase goes, sub-judice, so, I would rather keep away from them and tiptoe around them.

The listing of Club Mahindra was a very emotional moment for you because it was a promise of 1994 that was fulfilled, last of the flagships to be listed. Since then you have announced your forays in several new businesses, aerospace being the latest, are more listings on the anvil?

Anand Mahindra: When I said that that was a promise fulfilled, it was a promise I made in 1994 when we created the sectors and they referred to businesses we were already in and how we would follow a pattern in our entrepreneurial mode. We would incubate new businesses. We would do them separately, hence, the Federation concept and we would list them separately, so that investors could track and follow them separately. So, that became a template and a pattern and the completion of the promise was with Club Mahindra because we were already into hospitality in 1994. What that means is that you can take that pattern and that trajectory as a template for anything new that we do, so if you ask me do we incubate a new business, are we going to list, of course because that's the value creation mode both for Mahindra as the promoter and for our co-investors in the business.

So does that mean that many of your current JVs, say for instance, the JV with Navistar or indeed your retail business or even the aerospace business in time to come, we will see some of them listed?

Anand Mahindra: As a general rule, all the ventures that we incubate would be listed. There will naturally be some exceptions, some could be where they are direct subsidiaries of a particular flagship that is listed and in the same business, so there is no reason to list because the value creation mode is in effect carried out through the parent that could be one area or it could be with a JV partner that does not want to list but once again because we have the controlling interest in it, the value of that JV is reflected in the parent, so there is no hard and fast rule but in general and the majority of ventures that we follow will be listed.

Since we are talking about Navistar and your other JVs, can I ask you this, is there any plan to take a stake in Navistar globally because this seems to be the season for automobile alliances, the latest being Volkswagen and Suzuki?

Anand Mahindra: Well, our strategies are not seasonal, they do not follow a particular pattern and no, there is no such plan because the fact is that the JV is very focused on the Indian market and exploiting what we think is going to be an expanding truck market in India, particularly for products, which are new and world class, so our blinkers are on, we are looking purely at India and we think that the value creation in the next decade is going to be in India and China, this part of the world, so we are keeping our eyes very much on the road here.

What's happening with the Mahindra-Renault JV because the last time, Carlos Ghosn was in India, he actually was very vocal about the fact that he is disappointed by the way the Logan has performed in India and he actually went on to say that yeah, we have made some mistakes, etc., so is there some rethinking going on that score?

Anand Mahindra: I am going to reiterate what I have said very often before both to you and to other people who asked the question, one of the mistakes we made was creating over expectation. If you really look at this product, it was declared the highest quality sedan in the country, so from a point of view of a product and its quality, it met all its goals. It is 4-5 years later still selling in what would be relatively decent numbers for a sedan that has not been refreshed at all, so it hit at sweet spot. It has got votaries, if you go out and talk to anybody who has bought the vehicle; they are one of our most satisfied customers across the group. So, one of the problems was creating over expectation for how much this vehicle could sell in India. Secondly the problem as I have said before was that the regulations change over here, so the tariff mechanism here suddenly weighed against a vehicle like this where we could not alter its size. So, anyone who was able to alter the size of the vehicle to fit into the benign tariff rates, excise rates for lower vehicles was able to get a fresh boost of volume. That factor in our opinion was beyond Mahindra's control, otherwise from the point of view of execution, quality, customer satisfaction; I personally look back and say this was a successful experiment for us in the sedan area. As to what is coming ahead, once again these are areas we are discussing. Renault has a number of plans, you have reported many of them. I should ask you what their plans are since the plan seem to keep changing every time I pick up the newspapers but we are looking at our venture and we are involved in discussions as to how do you extend, what is the next step for us and when we do have a resolution of that, we will get back to you.

You were talking about strategies and one of the big areas where you have diversified into of late has been trucks. There you are going to go head to head with two very established players, Tata Motors and Ashok Leyland. What is your truck strategy all about? How will you differentiate your products, your brand from this established duopoly No. 1? And both in commercial vehicles as well as in two wheelers, your two big automobile diversifications, you are taking on two very entrenched players, so how are you going to take them on? What's the recipe for success there?

Anand Mahindra: Let me flip the order in which you asked the question. You might recall that when we first announced our intent to go into two wheelers, there was huge scepticism and there was a feeling that we were going into a declining industry if you remember. People were saying Oh! The Nano is coming, this is going to replace two wheelers and if you remember the industry was on a downhill slide three years ago and so, everybody felt why you are going into an area of the industry, which will actually move up and will decline and today its one of the fastest growing segments. So, we were never in doubt about the potential for growth at the bottom of the pyramid and we were never in doubt that two wheelers would always remain the entry point to mobility for the Indian customer. We also talked about a niche strategy and being able to differentiate ourselves in the area we were. Scooters were seen as a declining market; once again I went out on the limb and said that the scooter market can revive. In fact it is a great place to enter, great green strategy. So, you will allow us some modest credit for the fact that what's seemed contrarian then has actually not turned out to be so contrarian and in fact as you probably know, our two-wheeler strategy is doing as well as it possibly can and we are selling everything that we can make today, so there is room for a player that comes in with a differentiation.

Now let's go back to the truck business, therefore, I hope you will allow us a little bit of play if you will in not going into what looks like no-brainer of a situation taking on people or trend. Once again we think the truck market is poised to expand, so the pie is going to expand. This is not a declining or plateauing market. India is about to begin a whole new growth phase. Infrastructure is going to boom. There is going to be enormous demand for trucks. Yes, there are two entrenched players and we do not underestimate them. There has been a duopoly up to now. We think duopolies are interesting, that's why there is room. If you told me there were 10 very strong players, I would say that's a difficult market. When you go in, if you are able to differentiate, then there is clearly room in an expanding market. How do we plan to differentiate? It was in our advertising that you saw a few days ago, on the basis of performance, technology, innovation, performance, that's how we will differentiate.

One of the ways in which the two big players in the two-wheeler business had actually improved their margins and been very price competitive is by moving to tax havens like Uttaranchal. Is that something that Group Mahindra will also be looking at?

Anand Mahindra: We will always look at any opportunities as they arise. As you know, we do have our own facilities for both tractors in Rudrapur and for our vehicles & three-wheelers in Haridwar, so we are not averse to looking at any benefits if they come. However, we found it more beneficial to invest in kinetic and get a readymade facility as a start-up point and once we have utilised that capacity is when we will start looking around to see what the next strategy should be for manufacturing.

Satyam again that's the other big business in your Federation, you wanted Satyam to turn around tomorrow. What is the turnaround plan right now? By when do you think it will actually happen? Can you give us a heads up on that?

Anand Mahindra: Well, now I would say I want Satyam to turn around yesterday because that would be the appropriate timing based on what I told you last time. Clearly tomorrow was a turn of phrase, what I have meant to say was I am impatient and it is not just me, everybody who has been watching, has been impatient, you are impatient, investors are impatient, the government is impatient, and I hope impatience remains a watchword throughout, so I do not think we will ever feel we have turned it around fully. We will continue to look at the next frontier. Am I happy with the way things have gone so far? Yes, extremely. I have been asked this very often and my stock response is that there is nothing that we have encountered that was unexpected and that's very good news. Clearly there are milestones. There are milestones like the court cases. There has been some good news on that front, which you referred to earlier. The class action suits are an ongoing process but to me, class action suits are an ongoing process of many multinational companies phase. The accounts are the next big milestone, which we are looking forward to completing and then everything will be much more transparent to everyone, so that's the next milestone. But in terms of business, in terms of customer retention and in terms of new customer attraction, I am very pleased with the way things are going.

I am going to take a cue from what you just said about nothing being unexpected in Satyam. Recently CBI has indicated that the actual fraud could well be almost double the 7000 crores amount that was initially announced. Does that worry you?

Anand Mahindra: No, you have to understand that what they are referring to is the past. When you buy a company, you are buying a company based on what you think are going to be its revenue and its profit earnings capacity in future. No one in this auction, bid for this company based on historical accounts, that was sunk, that was gone. So, what they are talking about is talking about a historian may be interested in in terms of what was the exact nature of the fraud, of the crime itself. We bought a company based on what its people were doing at that point, how many people there were, what their clients were, what the expected retention rate was and that's it. So any further jockeying up of the numbers really is not something that faces us or is not something unexpected in that sense.

So that it would not for instance be additional liability?

Anand Mahindra: I do not believe so.

Also when we are talking about Satyam, one of the things you yourself just mentioned that the restating of accounts is the next big thing. One of our sources are telling us that a lot of your big clients are actually waiting for that restated accounts to then take a call on whether to return to Satyam. Is that something that your team is working on to get those clients back even before the accounts are stated?

Anand Mahindra: No, I hope they are doing that. They should be working on getting them back.

You yourself personally went out on road shows, convinced some of the bigger clients?

Anand Mahindra: That whole road show, to be frank, was based on retention, large clients and that was a very successful campaign that we all did because there has been very little attrition of major clients since that time. What you are talking about is clients, I think you refer to clients that had left and may come back into the fold, that's good news.

I am referring to clients like say for instance British Petroleum and...

Anand Mahindra: Yeah without taking specific names, what you are telling is good news. If your information tells you that there are people poised to return to the fold, then that's wonderful news.

But has there been a call taken on sticking to the deadline of restating the accounts?

Anand Mahindra: No to be honest, that accounts thing is not completely in our hands. It has been forensic audit that one has to do under SEC rules and that's why it has been a little protracted. We are not sitting there. It is not like in Indian weddings where you tell the pujari, will you hurry up the pooja and finish it in half the time that you normally do. We cannot do that, so the pooja is going to take its time but we expect that the process is going on and should end fairly soon.

But the business of getting new clients into the Satyam fold, has that been impacted by the fact that the accounts have not been restated yet?

Anand Mahindra: As I said, there has been good news on the client acquisition front but I am sure that we could do even better when the accounts are restated, because then you go out there and you can say, 'here is the company. It is very strong.' What I have been doing until the accounts have been restated is that I go and tell people, 'look, I want to tell you one thing that if you are worried about the financial health of this company, don't be because everything that we invested to acquire this company is still lying in the company, so it is one of the most cash rich companies in the Mahindra Federation, therefore, you should not be worried at all about our capacity to finance the delivery of your jobs and the solutions you need.' That's what I have been doing in the interim and it seems to be having an impact but you cannot blame any client for wanting to know what the accounts look like.

One of the things that Mahindra Satyam did after Tech Mahindra came to the picture was putting about 10,000-odd employees in the virtual pool but that was when the recession was at its peak. Now with hiring back in place and attrition increasing, what is your HR strategy going to be in keeping your flock slim and trim but together in Satyam?

Anand Mahindra: I would not second-guess CP Gurnani and Vineet who are really running the operation as you know. I do not run any of the companies hands-on, so it would be a good question to ask them for the granular HR strategy, but from a group perspective, it is very simple. As far as we are concerned, the first thing is to protect as many jobs as we can and that means that you return to profitability, you do not protect employment by remaining unprofitable. So, profitability is the first mantra and then as business grows, you will obviously give first track to the people who were there in the virtual pool and that has been done. There have been small dribbles of people coming back in from the virtual pool and that will be the policy that they will follow. So, if the western economies recover, if businesses recover, then it's a win-win for everybody.

When you say that the first goal is profitability, do you have a timeframe by when Satyam has to come back into the black?

Anand Mahindra: I do not want to give you again a cute answer like yesterday or tomorrow, but obviously we are impatient and you do it as soon as you can. Would not it be absurd for me to say, you will return to profitability six months from now? If CP can do it next month, why should he wait six months from now? So, I am going to say you will turn this around as quickly as you can because why should an IT business from India, with all the comparative advantage that we have, we unprofitable at all. There is absolutely no earthly reason for it to be unprofitable. All the IT companies in India, the big ones, remain profitable in the worst period of the biggest financial meltdown in history. So, there is no reason for this company to be unprofitable.

More or less your entire Federation of Businesses have done really well and you have managed to hit the sweet spot. What is your mantra of turning what has been annus horribilis into a best year, business wise for you?

Anand Mahindra: I get very concerned when people use phrases like crowning glory because it usually means that's the point at which you retire or you hit downhill after that. So, I hope that was not the implication because there is a long road ahead of us and many more mountains to climb. What was our formula? We had a very simple one, when we were in the middle of this crisis, smack in the eye of the storm so to speak, we had our annual conference last year, the Blue Chip Conference and we had three mantras, it was Reboot, Reinvent and Reignite. Reboot essentially was the old adage of 'never let a good crisis go to waste', so use it to low your costs, get back to basics, cut all the fat that you may have accumulated in years of prosperity and complacency and so on, and we did a wonderful job at that. Reinvent was that look, yes, we got to be careful about what we spend, so do not ask for budgets, which are 10x for your development, use Indian fluid innovation but constantly look around for ways in which you can continue to innovate but at very low costs and use lateral thinking, a crisis is a terrific time to spur lateral thinking. And the most important was reignite that look, despite the cost cutting, despite the rebooting, you are not going to go into a bunker. You are going to keep scanning the horizon because times like these are times when you can change the game. When you can find a way to get extraordinary market share because if everybody else is in a bunker, that's the time you can usually crawl ahead, and I am very pleased to say that everybody took that to heart and that's precisely why we were not shy when it came to Satyam because we realized that it was in times like these that you could make a game changing move, which I dare say we did in the IT business and the tractor business did exactly that when people were conserving expenses, they did not conserve their marketing expenses and the results are there for you to see that our market share has gone up substantially in the tractor business and once again in the auto business, we never cut expenses, which were relating to even capacity and even product. Now one can say not cutting product expenses become convention now, everybody knows you ought to do that but we never cut even for capacity and that came out of a fundamental belief and an optimism that the world would write itself before the timings given by most of the doomsayers and happily Chakan is coming on stream right on time for us to exploit this rising tide in the auto market, which was your first point that you made.

Trucks business, which is your next big diversification in the automobile sector, with trucks, with IT, you seem to be going head-on with Bombay House on several of the businesses in which they specialise in. Is Group Mahindra taking on Group Tata?

Anand Mahindra: You know enough about the group that we do not build strategies based on any kind of hostile or over-competitive intent, that's not the way we do it. And as far as we are concerned, the Tata Group is a role model, so rather than take them on, just look at us as people who are following a group that has done very well by India. My grandfather worked in Tata Steel, he was a General Manager, Market, Tata Steel, Mr. Keshav Mahindra. He was very close to JRD Tata, so there is a great amount of symbiosis between the two groups. We see them as group as our role model and worthy of emulation, so the idea of taking them on is furthest from our mind.

You have also recently announced a very big investment in your Chinese JV. The China angle seems to be an interesting angle for you, particularly in tractors, also may be in two-wheelers if I am not terribly mistaken, are there more acquisition, alliances for the group for other companies in the Federation in China coming up?

Anand Mahindra: Nothing that I could talk to you about right now, but as you know, we just announced another MOU that we signed with our current partner in China, the Yueda Group to put up an engine plant, that's a very major commitment. If you really look at China's automotive industry and you know the industry very well, diesel engines is one area where they really do not have much competence despite being now the largest automotive market in the world. So, we think it is a very interesting move for us to set up an engine manufacturing plant albeit for tractors, but in diesel engine capacity and competence, that's a major commitment with China. As to whether more things will happen, well, it is the fastest growing market in the world, so if there are opportunities, we will certainly find them.

Going back to your JV with Mahindra Renault, would you at any point take a call on whether to walk away from that JV?

Anand Mahindra: As I said these are some questions where we are discussing a whole host of options with them and it would be wrong on my part to second-guess any of the conclusions that might arise from that discussion.