2nd Gen Thar carries the DNA of brand ‘Mahindra’: Pawan Goenka, MD & CEO, M&M

Pawan Goenka, Managing Director & CEO, Mahindra and Mahindra Limited, talks about 2nd generation THAR that was unveiled on 15 August, demand revival, 'Atmanirbhar Bharat' and opportunities in it, product launches, electric vehicles during an exclusive interview with Swati Khandelwal. Edited Excerpts:

Q: You unveiled the second generation of all-new Thar on the 74th Independence Day. Tell us the kind of responses you received on it and what is your future outlook, particularly for that vehicle, which is very important for Mahindra and what is your expectation with it after it is launched on October 2, 2020?

A: Thar was unveiled on August 15 and I can just say that the response we have received on it is quite good, it is beyond our expectation. Everyone, whether he is an auto enthusiast or media or auto media or customers or the dealers, has said that this is a good vehicle of Mahindra and is the DNA of brand Mahindra. It is aligned to the DNA of the rugged off-road adventure vehicle. This is why it has got a good response and I believe that this vehicle will go beyond our expectations. 

Q: Let us know about the kind of activities that are happening across the overall auto industry. Demand revival was a very critical aspect post-COVID period. So, what kind of recovery is expected for the industry and your company? What impact the rural demand will have on the overall industry?

A: The auto industry and tractor industry are the two main industries for us. If I would have had spoken about their position some 6-8 weeks ago, then I wouldn’t have expected that the positions will be so good, as it is today. I will have to explain this. There has been a monthly growth in the numbers in the auto industry since we started in May. There has been a growth in May, June and July. Industry’s volume was 85% down in May, which reduced to 48% in June and was at par with the last year in July. The festive season is at a corner and I believe that there will be a good demand in the festive months, i.e. August, September, October and November. I am talking about the industry and Mahindra is a part of the industry so every up and down of the industry also happen at Mahindra. As far as there is a question of concern in the auto industry then there is a concern on the supply side. Some of the suppliers - about three to four suppliers - are not able to ramp up the volume due to certain reasons like local lockdown at some places, lack of migrant labours as they haven’t returned yet and presence of the COVID virus in the plant among others. Every company is suffering a bit - because three-four suppliers are not able to ramp-up - because they are not able to supply the volumes as per the demand and there is a need to increase the volumes due to the festive season. 

You also talked about the Agri and rural economy then currently it is a bright spot in our economy. The agricultural economy is doing well because everything needed for this economy, like the monsoon, Rabi harvest, farmers revenue, Kharif harvest, reservoir level or something else, are positively aligned in the agri-economy. I can say that in the last 4-5 years, I have not seen the rural economy in such a good situation in June, July and August. Everything is aligned positively, due to which there is a good demand for the tractors. Demand grew by 37% in July as compared to last year that too when there were supply constraints. There are supply problems in the tractor industry but not equal to auto, which is more here because of complexity in the auto. Both industries are doing well. The tractor is beyond last year and auto is catching up to last year. As far as Mahindra is concerned then Mahindra is a part of the industry so the ups and downs of the industry also belong to us, in some segment we are slightly better than the industry, in some slightly lower than the industry. But overall, I would say that our performance is similar to the performance of the industry in both the tractor industry and the auto industry. 

Q: I would like to talk about an important issue, the Atmanirbhar Bharat and you are leading a very important committee in it. First, let us know the objective of this committee and what are the timelines for it?

A: First of all I would like to say that we have been talking a lot about Atmanirnhar Bharat since last 2-3 months after the honourable Prime Minister used this word in front of us. But I would like to say that there is a misconception about Atmanirbhar among people. It doesn’t mean that we should stop importing because if stopping the imports will isolate us. Our economy will not progress due to isolation. This means that whatever we do in our country should be the best in the world in terms of quality of production, the quality of product and the quality of service; everything should be amongst the best in the world. And the R&D and the technology that goes in the service of a product should be ours. If we will continue to bring technology from other countries then we will never be able to move ahead, so it should be ours. Thirdly, we have to be globally competitive, if we do not make ourselves competitive by putting an artificial barrier, then we will not be able to develop our economy. So, keeping these factors in mind we should move ahead towards Atmanirbhar Bharat and find the sectors and the ways to be Atmanirbhar and be globally competitive in a way that we can turn into a global hub, not just to supply to India. 

Q: Can you name the sectors in which we can take a lead? I think 20 champion sectors have been mentioned but this is a very big canvas and if we choose some sector from these then what are they and how low fruits they can be for us?

A: Respectable Commerce and Industry Minister Piyush Goyal had a discussion about this with the industry in April. He had a video conference with the senior people of the industry and asked how the COVID problem can be converted into an opportunity and how India can become a manufacturing hub in chosen sectors. At that time, we chose 12 sectors and worked on them for 3-4 months. Every industry of the chosen sector has worked on it and created an action plan to find ways to take ahead the sector. Some work should be done by the government like food processing, steel and aluminium sectors. But I can say that the chosen sectors have a substantial opportunity to take ahead India’s manufacturing, for instance, we have a Rs 25,000 crore industry of room air conditioning and it can be increased to Rs 1 lakh crore, i.e. it can be grown by Rs 75,000 crore, in the next 1 years. If we have a look on the agro-chemical that acts as a nutrient for crops then it is $ 5 billion industry and can be converted into $ 10 billion industry in next 5 years, i.e. it can be increased by Rs 40,000 crore. Similarly, the footwear industry, a simple product, can be grown by Rs 65,000 crore in the next 5-10 years. 

But the committee is working on these things as these changes can’t be made overnight and will require many changes to become globally competitive. It cannot happen overnight if it is that simple then we would be globally competitive. So, we will have to work a lot in many directions and we are working with the industry and presenting the same to the government of India. I would say that I have never seen before the kind of receptivity that this government has. Every department, joint-secretary, secretary and ministers are involved in it and have a desire to enhance the manufacturing capabilities of India.  

Q: You spoke of the opportunities and the kind of growth can be envisaged in the next 5-10 years. Surely, there will be challenges. Let us know the kind of support the industry wants from the government apart from ease of doing business?

A: Let me take a step back, the manufacturing industry has around 16-17% contribution to India’s GDP. And if we have a look at Korea, Germany, China than the industry has a contribution between 25-30% to the GDP of these countries. So, we will have to increase manufacturing at a very fast speed. The government has been giving the direction for a long time but such a process has not been seen. Our manufacturing growth has been more or less in line with GDP growth and that’s why we are stuck at 16-17% but there is a need to increase it. As you said, if it would have been easy then it would have happened, obviously, it is not easy. I would not say that the industry has placed its demands in front of the government but will term it as a joint venture between the government and the industry. It is a partnership of the two in which the government should move one step ahead and the industry will have to take two steps, to make this happen. If I give some examples of the challenges that we are facing includes

Things that should be done from the government side to make us competitive it should remove the constraints, we face, like: 

Power Tariff: Power tariff for the industry is quite high for the industry because of the cross-subsidy, which increases the cost of manufacturing.  
Logistics Cost: Logistic cost in India is more as compared to any other country. It also adds to our total cost of taking manufactured goods to its destination.  
Embedded taxes: There are some embedded taxes which is not moderated through the GST and this also increases our cost. 
Regulations: There are certain old regulations and overlapping regulations and it increases the cost of doing business. 

Although we have focused a lot on ease of doing business, at the same time, we should also focus on reducing the cost of doing business because unless we are globally competitive, they cannot become big in export. 

Similarly, there are many things that the industry should do, maybe more than the government and there are certain things that the committee has concluded like

Scale: India does not have a scale for anything, whether it is furniture, air conditioners, footwear or any other industry, we don’t have a scale. So, the industry should come forward and invest to increase the scale to achieve cost competitiveness. This is the biggest thing that the industry has to do. 
Investment in R&D: Investment in R&D is very weak and just around 0.25% of the GDP is invested in R&D by the industry. It should be increased to make sure that we can use our own IPR so that we can have our products and services and can export it and sell it in our country as well. 
Productivity and Quality: To be competitive globally there is a need to increase our productivity and enhance our quality as well. At the same time, there is a need for skilling. 
Brand India: There is a need to encourage brand ‘India’ outside India to make sure that the Indian goods can create a pull instead of being looked at as a low-cost option. 

These are the things that the government and the industry should do. I will say that this is not something new. If you would have talked about it some 3-5 years earlier then I would have hardly said these things. But the difference is that there is a renewed enthusiasm on both, industry and the government, sides. In the industry because it seems that the government is very receptive today to look at these issues and see how we can resolve them. At the government side because there is a realization that if we fail to increase manufacturing now then perhaps, we will never be able to do it. This one realization has aligned every department of the government and I think this is the best opportunity. I can say that we have seen how we can really take the manufacturing in India from where we are today to a much higher level. 

Q: Update us about two-wheelers. What focus the group will have on two-wheeler business, electric vehicle, Ssangyong? 

A: These things were discussed two weeks ago when we had a media interaction after the quarter results. So, there is nothing new between 10 days ago and today. I can repeat certain things. As far as the electric vehicle is concerned then we are not lacking behind in it. However, there has been a setback in the electric vehicle industry due to COVID-19 as the momentum that we were seeing before the COVID-19 has come to a halt, right now, but it is starting once again. As far as our product, investment and infrastructure are concerned then we are not making any cuts in it and moving ahead. I sincerely believe that time for the electric vehicle has come because the price increase in BSVI of the IC vehicle has increased the affordability of the electric vehicle. Secondly, during the COVID-19 we saw how the way air got cleaned due to the cleanliness in the environment. So, I think there will be more and more desirable among people to move towards the electric vehicle and I don’t have any doubt in it, although, we have lost some time because of COVID-19n the industry will come back.

As far as new product launches are concerned, then Thar was revealed on Saturday and will be launched on October 2, 2020. After this, we will launch W601 in the first quarter of FY22 and then Z101 will be launched in the third quarter of FY22. Both of these are brand new products and are very important for us in the automotive business. In the case of tractors, we are working on a very ambitious project code-named K2, this is a new series of tractors and the first product of the series will be launched in the next two years. The work is going on in Japan and we are working with our joint venture Mitsubishi, a tractor. 

You also asked about the two-wheeler then in the segment then we are focusing on our bike Jawa, which is doing well and we will share its detail after some time. We are not talking a lot about it. 

Performance of our international business has improved a lot in the first quarter despite COVID-19 and I believe that on a quarter-on-quarter basis we will keep improving on the performance of the international subsidiaries. Besides, we are following a strict and disciplined parameter to look at every business to find out their long-term financial return and strategic importance. Based on this analysis we will exit from some businesses and slow down others while paying more attention to other businesses. Three things were announced earlier on our press conference that s

We have made three major announcements earlier in our press conferences and they were 

Ssangyong was announced in early-April 
GenZe was announced in June and we are exiting from it, which is an electric two-wheeler company in the US. 
We have also announced that we will not participate in the US Postal Service, which was a very big project. 

These are the three major announcements and further announcements will be made after the decision is made on them.

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Q: The government in the recent past in its notification allowed manufacturers to sell their electric vehicles without batteries. Do you think that the consumers will be receptive for it and what is your view on it? Do you have plans to invest in the battery business?

A: Anything that makes the two-three wheelers more affordable for the buyer/ consumer and creates a pull in the demand than it is something that we are all for. The consumers are a bit reluctant in buying the electric vehicles and it should be brought down. So, if a swappable battery or the outside vehicle battery can increase the demand then it is a good thing. But I have a doubt in this, which was not cleared yet from the notification and I hope that it will get cleared later. It is about the infrastructure that should be created for battery swapping is at a very small scale at present and there is a need to increase it. Secondly, who will take responsibility when an outside battery will be used in the vehicles if something goes wrong? These are certain things that should be sorted out and I am sure that it will happen as we go on. But I think overall it is a good thing that we are giving options to the consumers on whether they want to buy a vehicle with a battery, which obviously has an upfront cost or buy a vehicle without a battery, which means you will be paying operation an operation cost.