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HowPunjabTractorsisgivingMahindra&
Mahindraarunforitsmoney
N.MadhavanDecember6,2012

ExecutiveSummary:Notoftendoesanacquiredcompanygivetheacquirerarunforits
moneyinthemarket.ThiscasestudylooksathowPunjabTractorsLtd,whichwashardlyin
thebestofshapewhenMahindra&Mahindraacquireditin2007,wasturnedaround,and
todaydoesexactlythat.
WhenMahindra&Mahindra(M&M)acquiredPunjabTractorsLtd(PTL)forRs1,489
croreinMarch2007,thelatterwasapaleshadowofitsformerrobustself.Oncethe
country'smostprofitabletractorcompany,withits'Swaraj'brandrenownedthroughoutnorth
India,PTLhadsufferedduetopoormanagement,whichhadreduceditfrombeingthe
secondbiggestplayerintheindustryattheturnofthecenturytofifthplace.Itsshareprice
hadalsodroppedfromaroundRs1,000toaboutRs250inthesameperiod.Startedin1970,
withthePunjabgovernmentasthemajorityshareholder,PTLbeganflounderingafter2003
asthestategovernmenttriedtodivestitsshareholding.
Evenso,
thebuy
madesense
forM&M.In
2005,its
numberone
positionin
theindustry
hadbeen
threatened
forthefirst
time.That
wasthe
Swarajdivision'sassemblyplant
yearwhen,
inMay,ChennaibasedTractorandFarmEquipment(TAFE)boughtEicherMotors'stractor
division,increasingitsmarketshareto22percent.ThisbroughtTAFE,whoseearliermarket
sharewasjust14percent,withinstrikingdistanceofM&M,whosesharewas31percent.
TheacquisitionalsogaveTAFEanentryintonorthernmarketssuchasPunjab,Uttar
PradeshandHimachalPradesh,whichaccountforathirdofalltractorsales.M&Mneeded
toincreaseitsleadanditdidsobybuyingoutPTL,raisingitsmarketshareto40percent.
Besides,PTL,likeEicher,wasstrongintheNorthandwouldthuscomplementM&M's
strongpresenceintheWestandSouth.ButonlyprovidedM&Mrestoredittoitsformer
healthandintegrateditsuccessfullyintoitsfold.

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HowPunjabTractorsisgivingMahindra&Mahindraarunforitsmoney:BusinessToday

ThemanassignedthischallengingtaskwasBishwambharMishra,whoatthetimewas
headingM&M'soperationsinChina,butwasbroughtbackasPTL'smanagingdirectorin
July2007.Thefirstcrucialstephetookwastocommissionanexternalagencytofindout
whatwaswrongwiththecompanybyinterviewingits300oddemployees,whospokeout
freely.TheysaidPTLhadneitheravisionnoralongtermplandecisionmakingwasslow
andinvariablytopdownproductionwasnotmarketlinkedandnomajorinvestmentsin
productdevelopmenthadbeenmadeinrecentyears."Theoutcomewasrevealing.The
employeesdidnotpulltheirpunches,"saysMishra,whonowheadsM&M'stractorandfarm
mechanisationbusiness,andisamemberofthecompany'sGlobalExecutiveBoard,which
includesmorethan20ofitstopmanagers.

M&M'sSwarajDivisionmanagementteam(left)includingBishwambharMishra(seatedonthenoseofthetractor),
PramodLamba(onthefrontwheel),JatinderS.Chawla(ontherearwheel)andHarishChavan(thirdfromtheright,
seatedonthetractor)withcolleaguesPhoto:ShekharGhosh

Andwhatdidtheemployeeswant?Theysoughtaclearvisionofthecompany'sfuture,a
majorthrusttowardsproductdevelopment,aswellaslargescaletraining,skilldevelopment
andbetterwelfaremeasuresforthemselves.Interestingly,employeesthemselves
suggestedtheoverbearinglabourunionneededtobetamed."Theexercisegaveusinsights
intowhatwaswrongandmoreimportantly,howweshouldgoaboutsettingthingsright,"
addsMishra.
Visionwasthemostimportantandthenewmanagementbeganbycreatingone.Butitwas
notimposedarbitrarily."Wesetupa'VisionandMission'workshopcomprising60
employeesacrossfunctionstodebateandarriveatavision,"saysPramodLamba,Vice
President,HumanResources,M&M'sfarmequipmentbusiness.Thevisionwasgivena
nameNayiManzil(newdestination),whichwastomakeSwarajoneofthetoptwotractor
brandsinthecountry.
{blurb}
Animportantshortergoalwasalsoset,called'323'inthreeyears,therevenueshould
doubleandtheprofits,treble.Justhowthiswouldbeachievedwasalsolaiddownina
documentcalledNayiDisha(newdirection).ItsoverallthrustwastomakePTLan
innovationled,customerdriven,performancecentricorganisationwithaparticipative
managementculture.

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HowPunjabTractorsisgivingMahindra&Mahindraarunforitsmoney:BusinessToday

Butmoreimmediatedetailsalsohadtobetakencareof.Mishralaunchedwhathecalls
'healthdrivers'.PTLwasinafinancialmess.ThoughitwasstillprofitablewhenM&Mtookit
over,ithadahugeinventoryofunsoldstockwhileoutofitstotalsalesofRs969crorethat
year,Rs600crorehadyettobecollected.

"Thefirstsixmonthswerespentliquidatingstock,improvingcollectionsandsecuritisationof
debt,"saysMishra.HesetupaSwarajLeadershipTeamconsistingofhimselfandallthe
otherfunctionalheadstotakemajordecisionsquickly.Similarleadershipteamsweresetup
foreachdivisionaswell."Thesemovesensuredparticipatorymanagement,whichPTLhad
earlierlacked,"saysLamba.
Theinitialproblemstackled,'growthdrivers'werelaunchedinearly2008.Thesalesdivision
wasremodelledanddealershipsextended.Abrandbuildingexercisebeganwithaflurryof
TVadvertisements,backedbyretailfinance,tiedupwithMahindraFinance.Thismadeabig
differencesince90percentoftractorsaresoldoncredit.Productivityandquality
improvementtargetswereset.PTLwasfinallymergedintoM&Mandbecameits'Swaraj
Division'in2008/09.Productdevelopmenttoofollowed.
Whateveritsotherfailings,PTLalwayspossessedacultureofinnovation."Itknewhowto
designtractorsinthemostcosteffectiveway,"saysHarishChavan,whocurrentlyheads
Swarajdivision."Swarajproductswereruggedandknownfortheirdurability.Ascompetitors
weatM&MalwaysbenchmarkedourselvesagainstPTLwhenitcametofrugalengineering."
Thenewmanagementbuiltonthesestrengths."WeidentifiedproductgapsandinvestedRs
800croreinR&D,"saysMishra.Globalexpertisewassoughtifrequired."Weworkedwith
engineeringgroupAVLAustriatoupgradetheSwarajenginetoimprovefuelefficiencyand
meetnewemissionnorms,"saysJatinderS.Chawla,SeniorGeneralManager,R&D,
Swarajdivision."ThefitandfinishofthetractorsachinkinSwaraj'sarmourearlierwas
refined.Twonewproductswerelaunchedin2009and2010afteragapofmanyyears."

Aworkerfixesatyre.
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Itwasnotallsmoothsailing.ThePTLunion,usedtohavingitswaywiththeearlier
management,resistedthepushforgreaterdisciplineandhigherproductivitybyresortingtoa
'goslow'.Butthenewmeninchargehadprovidedplentyofcarrotsalongwiththestickand
soontheunionhadnochoicebuttorelent.
"Soonaftertheacquisitionthemanagementrolledoutmanybenefitswhichwerebeyondthe
expectationsoftheemployees,"saysLamba,theHRVP.Salarieswereraisedtoalignthem
withthoseinthemarket,medicalbenefitswereimproved,thecanteenwasrefurbished,
greatersafetymeasureswereintroducedandhigherinvolvementofemployees'familieswith
theworkplacewasencouraged.
"Ontheonehandweruthlesslydemandedperformance,butontheotherweshowedour
humansidetoo,"addsLamba.AndwheredoestheSwarajdivisionstandtoday?Production
hasrisento69,292unitsin2011/12from28,500in2007/08whentheacquisitiontookplace.
Standalonerevenuehasmorethantrebledinthesefouryears,toaroundRs3,000crore
fromRs969crore,whileprofithasrisenmorethansixtimestooverRs500crorefromRs
80crore.Swaraj,withamarketshareof13.1percentnowranksNo.3,behindonly
M&MbadgedtractorsitselfandTAFE.ThecombinedmarketshareofM&MandSwarajisa
formidable42percent.
By2009/10,M&MhadrecovereditsinvestmentinSwaraj.Indeed,inmanytractormarkets,
SwarajisnowM&M'Sclosestcompetitor.
{blurb}
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