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In an interview with ET Now, VS Parthasarathy, CFO, M&M, says both Mahindra & Mahindra and Mahindra Finance are looking forward to synergistic growth in India. On electric vehicles (EVs), he evetually expects the company to breakeven and eventually get profitable revenue growth.
You have infused about Rs 11000 crore into Mahindra & Mahindra Financial Services Ltd (MMFS) at the group level. How would both M&M as well as MMFS look to focus on growth as well as synergies and what really would be your broad strategy going forward?
First and foremost is that the rural market seems to have gained traction and growth and now Bharat and India both seem to be on the growth path, the GDP is a lag indicator but Novembers sales may be lead indictor and it seemed that there is robust growth.
Mahindra Finance has already asked for money or capital to enable this growth to be funded. Both Mahindra & Mahindra and Mahindra Finance are looking forward to synergistic growth in India.
In the domestic market, we can do two things; one is as the growth is there, make sure that we can capture and participate in the growth and hopefully have a win-win in the synergies side. That is the biggest benefit that we can have on two fronts; data and digital. In data, Mahindra & Mahindra and Mahindra Finance both have huge data and they can make a lot of meaning out of it independently but when both of them talk to each other, they can create insights and analytics which can add great value to the customer and that value creation would be a win-win between customer and both the organisations.
Your holding has now risen to 53.5% and at the group level over the next one or two years is there a case for further raising stake in Mahindra & Mahindra?
They have gone to the shareholders of Mahindra Finance to do a preferential issue to M&M and then to do a QIP. Both these have been approved almost 100% by all the shareholders concerned in the respective resolutions which have been put to them. About 4.9 crores shares or 8% of the equity is being issued. That is what they are doing. It is a way for them and they are seeing the growth potential which is coming through and the capital adequacy ratio and they are raising it and they have requested M&M to participate which we have done.
In the long run, what is the ideal level of holding that M&M would like to have in Mahindra & Mahindra Financial and what is the expected level of business that could MMFS would continue to finance for M&M products?
At this point of time, we have a holding of about 51% and while the preferential issue will temporarily take it higher, we hope that when they raise money, our holding will come down to what it is now. It is not increasing the holding per se but clearly helping Mahindra Finance as a shareholder to create more value and participate in the growth.
We will continue to hold that but our principle, as it has been emphasised time and again by our Executive Chairman Mr Anand Mahindra is that we will help every organisation in the value creation effort and we will not come in the way of it. So we will continue to hold shareholding which creates more value for all shareholders. That is the principle on the shareholding side.
In terms of business, today roughly one-third of M&M’s business in auto and a little bit more in tractors is being funded by Mahindra Finance. Going forward, we would like to maintain the principle of independence and interdependence. And so we will depend on each other to create more value for the customer and in course of time, we will both win as well and but we will also let both companies be independent and seek its firm as a listed company. We see a lot of interdependence but also independence in our approaches.
Volumes are a tad lower than expected. Talk to us about the outlook for the rest of the year in terms of volume growth and other things?
One of the things that has happened is that rural recovery or rural demand has strengthened in terms of volume. Even in November, in tractor sales we saw a 32% growth and about 30% growth in the industry. I am not sure about the industry figures but it is roughly in that range. Auto also saw robust industry growth. The strengthening of rural demand has started. With rural market starting to do well and a strong urban market, we can see a good second half from an industry perspective.
In the press conference after the Q2 results, we had said two things, that the tractor demand is robust and therefore the full year outlook was a 12-14% growth. Similarly, we said that auto will also see a double digit growth. Clearly, we see both auto and tractor demand to be stronger. When there are festivities, then the base effect and the overall growth volumes are higher but from a growth perspective, you should see good growth even in the second half of the year.
The electric vehicle (EV) analysts believe that you are much ahead of your peers. Update us on the developments in the electric vehicle space and also its viability when it comes to India given the infrastructural challenges?
We are already in the EV space and almost seven years back, there was an option called in saying that EV is the future and we have invested and I jokingly told my colleagues that while others have not put out the first generation vehicle on the road, we have the third or the fourth generation EV vehicles on the road. And we have now a wide range right from three wheelers, a full ground up EV which is called E2O and with four doors and we have got E Verito. There is now Supro van and maxi truck and the three-wheeler that was launched in Delhi. We have already got these products in markets because we believed there is a big future for this. We got the manufacturing capabilities set up and running. We are also focussing on the technologies that will define EV to have a foothold in some and expertise in some.
As far as the adoption is concerned I think that taxi experiments have taken place in three levels; one in Nagpur, with Uber in Hyderabad and we are also working with a private company called Lithium on using EVs in Bangalore. All of them together tell us that it is possible to do intra-city and use that even as a taxi and then EVs will be commercially viable and can be a win-win for all.
Battery technology is only getting better and probably more economic. Infrastructure is a challenge that is getting good attention both from the government and the private sector. I hope the adoption rate will be very fast and hope to realise the dream of the EVs having a good position in the auto market.
How do you aim to make it a profitable business? At the end of the day currently you have about 4000 electric vehicles on the roads. How many vehicles are you targeting say by 2020 when you will have perhaps other competitors as well joining on the road?
We can sell this as a TCO proposition to the customer where the customer can have a better proposition and we can also make money. Making money is not the problem. The problem is of getting enough demand and we see the 4,000 vehicles that we have on the road can quickly multiply manifolds in the coming months and year and then we can see a breakeven and then profitable revenue growth. I am clearly looking forward both to growth and profitable growth.
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