“Today, if we can win (in the SUV segment) in India in such a big way with all the global majors present here, then why not in the global marketplace? We have a lot of optimism based on what we’ve seen in the last couple of years,” Shah said in an interview. M&M is now in an investment mode after taking tough calls in the last two years to exit a few businesses. “All our businesses are now on a strong foundation,” Shah said in the free-wheeling interview. Edited excerpts:

For setting up the EV facility, what tilted the scales in favour of in Maharashtra?

We got the government to support us with incentives. That, frankly, made a significant difference. So, from that perspective, a plan is set. The investment of ₹10,000 crore is over eight years.

How soon will it come up?

We haven’t announced the timelines as yet, and this is sort of step one as to where it’s going to be. And then, we will start looking at timelines for production because some EVs can also be built at existing plants. So those are things we will announce in the next few months when we have more clarity.

Will you look at setting up additional manufacturing capacity for M&M’s conventional fuel-based vehicles?

We are doubling the capacity for ICE Engines. We closed last year at 29,000 engines for SUVs. This year we will close at 39,000 engines, and next year we’ll close at 49,000 engine capacity.

Do you sense a change in demand in rural markets?

So, we haven’t seen much of a change. It is more likely because the products that we have and the popularity of our products have been high. Our monthly bookings continue to be at a very high number. You’ve seen the success of the XUV 700 and the new Scorpio. So, the demand is very strong, and this is despite the fact that we’ve had longer wait times than we’d like for our customers.

So demand has not impacted us as yet. The sense we get in the market is that we may look at some slowdown in future, but I think a lot will depend on the level of demand that continues. And a lot will depend on how the global slowdown impacts us as well. We’re increasing capacity, so if we were concerned about the slowdown, we wouldn’t be increasing capacity right now.

You’ve been strategizing the group’s plans even before you took over. Are you planning any mid-course corrections?

All our businesses today are on a very strong foundation. If I go back over the last two-and-a-half years, we talked first about capital allocation. We’ve seen the results. We’ve set an 18% RoE (return on equity) target, and we achieved that well ahead of time. So that is not something that worries us. We may be at 17-18-19% RoE from year to year, based on the investments we make in various areas. But at least we have demonstrated that we can get there. Then we talked about growth in our core businesses. And we’ve taken fairly bold steps in auto across multiple products, and on the farm side, we’ve increased tractor capacity. If you look at Mahindra Finance, it is on a very strong turnaround path. Tech Mahindra has got a very strong tailwind. So core businesses have grown very well, and we talked about our ‘growth gems’, which are businesses that will reach a billion dollars of market cap. There again, we’ve seen good successes. We had outside investors come in as well. So on all those fronts, things are moving better and faster than we expected.

So on your ‘growth gems’, would you expect any listings to happen?

So for our growth gems, three are listed. Five are unlisted, and we do expect them to go for an IPO. We talked about three to five years a year ago, so the next two to four years is a time frame that we would have for listing.

Can you elaborate on the plan for Mahindra Susten?

We want Susten to get to 7 gigawatts (GW) capacity. We’re at 1.6GW now, and we plan to accomplish this in the next five years. So we’re effectively going to add more than 1GW of capacity every year. We want that to be a larger business.

Would you consider raising funds from more investors for Susten and the EV businesses?

In Susten, Ontario Teacher’s Pension Plan (OTPP) has picked up a 30% stake at the parent level and has committed ₹4,500 crore. We’ll be setting up an Invit (at Susten). The structure of an Invit requires five investors. So that will happen as we go forward. On the electric vehicle front, we’ll look for one more investor. Right now, our EV subsidiary, British International Investment (BII), has come in with roughly a 2.7 to 4.7% stake. We’ve kept the majority with us, and we may have a second investor come in. It’s more about the value they (investors) add and a little less about the capital itself because, right now, we’re generating capital from our businesses.

Will you look at cars, the missing piece in your portfolio?

In the short run, the answer is no. We are focused on the SUV segment. We’ve regained the number one position in the SUV segment. There’s still a lot of room for us to grow in the SUV segment. That’s the segment that is the fastest growing in India. We are focused on what we call authentic SUVs. Our approach is to continue to grow SUVs by bringing in five electric SUV models on the born electric platform. At some point in future, if it makes sense, we will look at (cars), but no plans right now.

How is your partnership with Volkswagen progressing? Will the two companies expand the scope of the partnership in the future?

It is progressing very well and is a key element of our EV strategy. As we work together, we do see all signs of it progressing further and developing stronger over time. I’m sure in the future there will be more things we can do together.

Would it result in, say, equity investment from their side?

Right now, there has been no discussion on that front. It’s more about components, batteries and motors. It may be platform sharing at some point in time, but we haven’t talked any further beyond that.

Anand Mahindra has often talked about the group as a federation, but with it comes the challenge of capital allocation. How do you address it?

We are in a much better position. The four large businesses are growing and generating capital. So we’re actually getting a lot more capital back right now. We closed last quarter at more than ₹12,000 crore of cash. So for us, lack of capital is not an issue as long as the businesses perform. Financial discipline is something that’s most important, and we need to make sure that even as we have a lot of excess capital right now, we’re deploying it in the right way, and we’re returning a fair amount to shareholders as well, so that’s part of the promise we made.

The other thing that Mr Mahindra said in the past is that if new businesses don’t perform, the group can cap it at some point. Maybe even exit businesses. Are there any tough decisions to be taken on this?

We took lots of those hard calls. SsangYong was the first, followed by the US two-wheeler business GenZe and GippsAero (the aeroplane maker). Even the First Choice Services business was sold to the TVS group, while we would like to grow the First Choice Wheels. So yes, we have taken hard calls.

Are you reviewing the heavy truck business?

So the feedback that we get from the market is very positive. It is not at the scale that we want it to be, so it has to actually grow at a much faster rate, and our focus right now is really on driving that growth. We can have a very successful business set. It is doing well, and the industry has also turned around, which helps us.

The Indian government is talking about self-reliance and is seen prodding domestic business houses to enter areas which currently attract huge imports, such as solar panels and semiconductors. Are you looking at investing in these sectors?

So we are looking at a partnership with Volkswagen for batteries. At some point, we will look for that to be manufactured in India. But we’re actually looking at a much broader theme. For us, India can be a hub for manufacturing automobiles. Manufactured in India and sell to the world. Today, if we can win in India in such a big way with all the global majors present here, then why not win around the world. Make in India is a much bigger meaning around making the automobile industry in India very powerful. One that spans the world. We have a lot of optimism based on what we’ve seen in the last couple of years.

You mentioned about the global markets, so how are you placed right now in terms of exports?

We got some very good markets around the world. In India, for our current products, we have these long wait times. So we actually cut back a little on exports. We can export a lot more. Our teams in those markets are waiting to get more products from us. So, that’s where the focus is. But with the products we have, we see a lot of potential for exports. On tractors, we are moving very well. The US business is doing very nicely. The acquisition we made in Japan is giving us the technology for India and for the US.

So your immediate priority will be to scale existing businesses?

We will continue to look at areas where we feel that we can add value. Our initial focus was on the clean-up part and taking tough decisions. After that was done, we pivoted to growth. Now it will be scaling up our businesses.

So are you happy with the progress at Tech Mahindra?

The team has done well on a number of fronts. One is getting large accounts. Getting into new industries. While Tech Mahindra is very strong in telecom, it has grown beyond that into financial services, healthcare and manufacturing. The one area that we still need more work on is the margin front because (Tech Mahindra) margins are lower than the rest of the industry.

But at the same time, if you look at it, Larsen and Toubro came from behind, maybe because of acquiring MindTree, but they overtook Tech Mahindra. Tech Mahindra has also made acquisitions, but they haven’t worked out well.

So the old acquisitions haven’t worked out very well. We had lessons from there, and the next round of acquisitions is actually working well. Yes, there will be others who acquire more at times, but for us is to make sure that we’re on the right track. We are in the right marketplaces adding value to customers having that discipline on acquisitions, and that is going to help us create value and grow.

How are the overall margins for the mainline businesses at M&M panning out? Is it as per targets?

So, we had set a target of 300 basis points higher in the last quarter for our automobile business. We hit 240 basis already. We still have some time to achieve it. There were a number of factors that impacted margins in both auto and farm segments. Commodity prices were one of them. In automobiles, it was more around new products, so at the time of launch, we’ll typically have a slightly lower margin, and as these new products get popular, then we see our margins increase.