Mahindra-SML merger to unlock sourcing, product platform and service synergies: Vinod Sahay

The consolidation of Mahindra & Mahindra’s truck and bus division with SML Mahindra is expected to generate significant synergies across component sourcing, product development, manufacturing, after-sales service and retail, even as the two brands continue to operate separately, according to a top company executive.

One of the immediate benefits is expected to come from greater purchasing power. By pooling the requirements of the two businesses, SML Mahindra can negotiate with common suppliers at a scale comparable to larger businesses within the Mahindra Group, said Vinod Sahay, President – Truck & Buses, Executive chairman – SML Mahindra and Member of the group executive board at Mahindra Group.

The company has already started seeing the benefits of this sourcing synergy, which will flow into the profit and loss account from the current financial year, he said.

READ THIS: ‘Electronic auto locks very dangerous’: Piyush Goyal urges auto industry to work on safety

The Mahindra Group decided to bring the two commercial vehicle businesses under SML Mahindra as part of its ambition to scale up its truck and bus business, which currently has about 7% market share on a combined basis. Sahay said the group is targeting a 10-12% market share by FY31 and eventually aims to reach around 20% by FY36.

The combined entity is moving towards a strategy of developing a common underlying platform, while differentiating the two brands through their body designs, styling and product positioning.

“We are, in a way, going towards a strategy where one platform will be used for two different brands,” Sahay said, adding that this will help cut product development costs.

“For example, if you have to make a wider bus, we don't now need to make two wider buses,” Sahay said, pointing to the industry's shift towards 2.6-metre-wide buses. A common underlying development can support products for both brands.

The integration of the two product-development teams and budgets will eliminate duplication of work, said Sahay.

Service network becomes a major synergy

After-sales service is another significant area where the two businesses are already extracting synergies.

Sahay said the two companies had around 300 service stations each before the integration. Since several dealerships have under-utilised capacity, dealers of one brand are being encouraged to service vehicles of the other with relatively limited additional investment.

“On service side, it makes a lot of sense to, unless the workshops are very close to each other, all other workshops, we are telling that just by minimum investment of some parts and tools, they can do the other brand service,” said Sahay.

The wider network is particularly important for commercial vehicles because of their substantially higher utilisation compared with passenger vehicles.

ALSO READ: Will the Baleno facelift get a sunroof and larger screen? Why the reported feature lists still differ

Dealer network to be combined selectively

The retail network will also be expanded by allowing dealers of one brand to take up the other brand in markets where they do not currently have a presence.

Sahay said the company does not intend to disrupt markets where Mahindra and SML already have independent dealers. Instead, it will use the existing network to fill gaps. A strong SML dealer in a market where Mahindra Truck and Bus does not have representation, for instance, could also sell and service the Mahindra range, and vice versa. The two brands, however, will continue to remain distinct.

Sahay said the combined entity has a market share of about 7.2% across commercial vehicles, compared with roughly 3% for each business individually before the consolidation.

The automaker is counting on the recent launch of Blazo i-TRK to help it improve its position in heavy trucks.