Oct. 6 (Bloomberg) -- Anand Mahindra, a scion of one of India’s richest families, abandoned a youthful flirtation with communism and cinema to work at the business he was born into. After expanding the Indian steel and tractor maker into cars, financial services and resorts, Mahindra’s appetite for growth is unsated.
“There’s no reason why we can’t get into any other business,” said the 55-year-old head of Mahindra & Mahindra Ltd., who donated $10 million to his alma mater Harvard College this week. “B-School was me atoning for my sins at college.”
Mahindra has tripled sales over five years, spurred by rising demand in India where his flagship company gets 96 percent of revenue. To cut its reliance on the domestic market, Mahindra & Mahindra is in talks to buy South Korean automaker Ssangyong Motor Co., plans to sell trucks in the U.S. and is reviving Satyam Computer Services Ltd. after India’s biggest corporate scandal.
“This is the next phase of the Indian growth story -- when Indian companies go overseas,” said Saikat Chaudhuri, who teaches at the University of Pennsylvania’s Wharton business school. “Mahindra has been a strong leader for his company.”
After studying film at Harvard, where he directed a movie about Kumbh Mela, a gathering of millions of Hindus at the confluence of the Ganga and Yamuna rivers in Northern India once every four years, Mahindra took his first job selling imported coal for Kaiser Resources in Bihar, one of India’s main mining regions. He lasted six months.
“It was mafia land,” he said. “You couldn’t go out after dark.”
Mahindra, who supported India’s Communist Party as a teenager, then did a yearlong stint as a management trainee at Mahindra & Mahindra before returning to Harvard to study for an MBA. He completed that degree in 1981.
When Mahindra arrived, Mahindra & Mahindra was producing tractors and licensed copies of Willys Jeeps, largely unchanged since World War II. He helped expand the auto range through a venture with Ford Motor Co. and then by adding sport-utility vehicles under the Mahindra brand that have made the company the nation’s largest SUV-maker. Mahindra also helped push the company overseas, with U.S. tractor sales beginning in 1994.
Mahindra & Mahindra is planning to challenge Toyota Motor Corp. and General Motors Co. in the U.S. by introducing small diesel pick-ups. The company has won approval from the U.S. Environmental Protection Agency to sell two models.
“When you are sitting on top of arguably the world’s second-largest consumer market over the next few decades, it’s your duty to use that advantage to become global,” he said in a Bloomberg-UTV interview.
Mahindra & Mahindra has jumped 38 percent this year in Mumbai trading, giving it a market value of $9.7 billion. The Mahindra family controls a 26 percent stake, according to the company’s annual report.
Delays in winning regulatory approval means the start of U.S. sales is about a year behind schedule. The company is also in a legal dispute with a distributor that has further disrupted sales, which were previously scheduled to begin in December. Mahindra declined to comment on the automaker’s U.S. plans and prices because of the lawsuit.
Mahindra & Mahindra will need to win customers in a U.S. market that has slowed to an annual sales rate of 11.8 million, according Autodata Corp. Full-year sales in 2007 totaled 16.1 million. U.S. drivers have also traditionally shunned small trucks because they aren’t much cheaper than bigger models with greater towing power, said Alan Baum, an analyst for Baum & Associates, an industry consultant in West Bloomfield, Michigan.
“If they can’t differentiate themselves because of price, then Mahindra are going to have a hard time,” Baum said. “Things looked a lot different for this market in 2007 than in 2010.”
The focus on overseas expansion may mean Mahindra doesn’t take full advantage of economic expansion in India, said Jaap Van Der Hart of Rotterdam-based Robeco Group NV, whose 3.7 billion euro ($5.1 billion) Emerging Stars Equities fund holds 2 million Mahindra & Mahindra shares, according to data compiled by Bloomberg.
“We would prefer to have them focus on the Indian market,” said Van Der Hart. “Going abroad will be more difficult for Mahindra than remaining in the Indian market. There will be more competition and it will face problems of being an unknown brand.”
To boost its auto unit, Mahindra has this year bought out partner Renault SA in a domestic sedan-making venture and acquired control of Bangalore-based Reva Electric Car Co. The company also expects to complete the acquisition of a controlling stake in Pyeongtaek, South Korea-based Ssangyong by year-end, which will widen its range and give it access to dealers in Europe and Asia.
Mahindra & Mahindra will need to revive Ssangyong, which sought court protection from creditors in February, 2009 under former parent SAIC Motor Corp., China’s largest automaker. The company intends to introduce as many as three new Ssangyong models in four years to help revive sales which tumbled 62 percent last year.
“It will likely take the company quite some time to win back customers and add new models even with Mahindra’s help,” said Jeff Lee, a Seoul-based analyst at NH Investment & Securities Co. “Ssangyong’s status in the domestic auto market has weakened a lot.”
Tech Mahindra Ltd., Mahindra & Mahindra’s computer-service venture with BT Group Plc, has begun to turn around Satyam after gaining control of the company with a 29.1 billion rupee investment last year. Satyam lost customers and its stock plunged after Ramalinga Raju resigned as chairman in January, 2009, saying he had overstated assets by $1 billion.
Very Calculated Risk
Mahindra called the takeover a “very calculated risk,” as Satyam also faced potential liabilities from investor lawsuits in the U.S., which are still to be resolved. The company, which maintains computer systems and provides back-office support for clients including Cisco Systems Inc. and GlaxoSmithKline Plc, last week announced a smaller annual loss as it reported earnings for the first time in two years.
“One of his great successes is the bid for Satyam,” said Uday Kotak, India’s 19th richest man, with a $3.4 billion fortune, according to Forbes. “Anand is a great risk taker and he has an uncanny ability of vision and attention to detail at the same time.”
Mahindra helped Kotak start a finance venture in the 1980s that grew into Kotak Mahindra Bank Ltd. The bank now has a market value of $8.4 billion. Mahindra is still on the board.
Running Mahindra & Mahindra is a change of course from Mahindra’s desires to be a film producer, which was a concern for his father, according to George Jacob, 86, who spent his career working for the company, rising up to become a director.
“Twenty years after he joined the group, I can only say that his father’s worries were unfounded,” Jacob said.
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