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 ative competition
ndari / New Delhi December 27, 2010, 0:46 IST

Mahindra has turned around Punjab Tractors to make it the third-largest tractor manufacturer in the country.
peting head on with the market leader — Mahindra itself
2001, Mahindra & Mahindra had decided that it should go for total dominance in the tractor market. It
benchmarked its productivity and financials (return on investment and so on) against two of the most-
efficient tractor companies in the country; one was Punjab Tractors owned by the Punjab
government. It had a robust product, its financials were impeccable and the company was right on
when it came to after-sale service. It was the only tractor maker that took money from buyers in
advance and delivered later. In 2007, word got round that the new owners of Punjab Tractors, private
firm Actis and Mohit Burman, had put it on the block. Mahindra & Mahindra grabbed the company by
Rs 1,370 crore.

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nalysts said that Mahindra & Mahindra had overpaid. The company’s fortunes had taken a dip in the last few
b Tractors’ market share had shrunk from 18.6 per cent in 1999-2000 to 8.1 per cent in 2006-07. Service tax | Reliance
y, it had slipped from the third spot to the fifth. Profit after tax fell more than half from Rs 133 crore to Rs 65 Gold | Ratan Tata |
he seven-year period, and return on average net worth had slumped from 39.8 per cent to 9.9 per cent. Net
nue too fell from Rs 1,017 crore to Rs 959 crore. Sensex | Tax calculator
ater, Mahindra & Mahindra President (automotive & farm sector) Pawan Goenka says Punjab Tractors has Personal Finance
han what was hoped. “Even in our best estimate, we didn’t expect it to turn around the way it has turned
he. “We paid that much because we thought the synergy with Mahindra & Mahindra would be far bigger
prices | Barack Obama
else; therefore it was worth a lot more to us.”
ors has now been merged into Mahindra & Mahindra, though it runs as an independent business unit called
vision (Swaraj is the brand of its tractors); so, its profit & loss numbers are not in the public domain. But there
cations of what has transpired in the last three-and-a-half years. The company’s target was to double the
triple the profit in three years. Goenka says the target has been met. Thus, the Swaraj division’s turnover
xcess of Rs 1,900 crore and profit in excess of Rs 400 crore in 2009-10.
mes jumped over 60 per cent from 30,045 in 2006-07 to 49,422 in 2009-10. This year, Goenka hopes to sell
ractors. The other target was to become the second-largest tractor brand in the country after Mahindra. That
achieved till date. With 12.5 per cent share, Swaraj is third in the sweepstakes after Mahindra (29 per cent)
Ferguson of TAFE (14 per cent). Mahindra & Mahindra Farm Equipment Sector Chief Executive (tractor &
sation) Bishwambhar Mishra says Swaraj will become number two only in 2013. To be fair, to increase
rket that is growing at 15 per cent per annum isn’t easy. (Tractor sales are expected to cross 460,000 in

alysts had raised the red flag on the acquisition, they had probably underestimated the problem. Sometime in
s and early parts of this decade, Punjab Tractors had got into the market-share game. It thus began to push
gressively with the dealers. The chickens came home to roost in 2001-02 when there was a severe liquidity
he dotcom bubble had burst. The company found that the unsold stock with the dealers added up to 30,000
above its annual production of 24,000 tractors. As a result, the receivables had risen to Rs 735 crore. When
Mahindra acquired the company, the stock with the dealers had come down to 12,000 tractors but the
ere still Rs 585 crore.
orded top priority. Dissatisfied dealers can ruin any company. To liquidate the inventory, production was
cheme was introduced whereby the dealers could repay the money to the company in parts. By a stroke of
e tractor market picked up around that time. The inventory got sold within six months and 80 per cent of the
ere in the company’s coffers within a year. “It was a setback for six month but gave us a long-term
ays Mishra. “We don’t push our tractors to the dealers any longer; we produce only when the dealers need
Adds PINC Research Vice-president Vineet Hetamasaria: “After the takeover, the dealers were told that they
en extended credit and the credit period will be 30 days. Hence, capital got released.”
rounds of the two Punjab Tractors factories located around Chandigarh, it was found that the machinery was
okay. No huge investments were required, though some money had to be spent on balancing equipment and
Customer feedback suggested that the look and finish of the tractors were not contemporary; these hadn’t
5 years. The looks were thus made youthful and vibrant colours began to be used.
ors sourced engines from Swaraj Engines which it owned 51 per cent along with the Kirloskars. The engines
wn for their ruggedness. What was lacking was fuel efficiency. Up to 70 per cent of the operational cost of a
e fuel. The efficiency of the engines has since been improved 4 to 5 per cent, which, according to Mishra, can
r up to Rs 8 per hour of usage.

mpany was chasing numbers, it had not invested sufficiently in research. Consequently, there had emerged
ortfolio, especially in the 40 to 45 hp segment. With rising incomes, farmers in India are upgrading to bigger
re is increased usage of tractors for commercial purposes like renting it out to other farmers or the
ndustry. It is viewed as more than just a transport vehicle or equipment for tilling the land,” says Religare
ets Analyst Kaushal Maroo. Thus, in 2009, the Swaraj division thus came out with a new tractor, the 843 XM,
ent. It is now working on a new single-cylinder tractor for loose soil.
Mahindra & Mahindra has left its research department more or less independent; it shares just a handful of
the Mahindra & Mahindra team like computer-aided engineering. To put it in perspective, Mahindra &
merged the research teams of its automotive and Mahindra tractor divisions.
araj vendors have not been replaced en bloc with Mahindra & Mahindra vendors. “A lot of the Swaraj vendors
ucers in and around Chandigarh; those we have decided to leave untouched. Some of the critical
 hat come from outside have been aligned with Mahindra & Mahindra. There is no point force-fitting
ays Goenka. Mishra says that Mahindra & Mahindra has helped the Swaraj division get better rates from the
pliers. This has resulted in savings of up to Rs 4,000 per tractor. In the last three years, the vendors close to
have been given information technology as well as financial support in the form of soft loans. “We source
worth Rs 800 to 1,000 crore from vendors in our neighbourhood. To safeguard our interest, we might even
y stake in some of our critical vendors,” says Mishra.
of synergy is finance. Mahindra Finance, the consumer finance arm of Mahindra & Mahindra, was brought in
araj tractors. This has helped it expand the market.

terventions have been in the fields of human resources, distribution and marketing. The first thing that
Mahindra Vice-chairman Anand Mahindra did after taking over was to announce that Swaraj was an important
l be protected and promoted, and it won’t be subsumed by Mahindra. He assured the employees that they
amped by people from Mahindra & Mahindra. Thus, the old Punjab Tractors team is more or less intact. Only
new faces were brought in, and that includes Mishra who was working for Mahindra & Mahindra in China. “It
ortant for us to keep the operations independent because one of the strengths of the Swaraj division was its
ay of working. It had tractors that were low in cost, and it was quick in taking decisions. We didn’t want to
that,” says Goenka.
pprehensions of the factory workers, daily morning meetings at the shop floor were started. Performance
s were shared with all employees every quarter. A biannual gathering of workers was started to reward those
ormed well. Japanese efficient practices like Kaizen and JIT (just in time) were brought in. It now wants to go
gious Deming award for total quality management. Training of workers was stepped up. A five-minute film
sambhal jatta (hold your turban high) was made to tell the workers that things can change with determination.
were in most cases half of comparable staff at Mahindra & Mahindra, were over three years brought at par.
hange perhaps has been the introduction of a performance management system. The salaries of all the
mployees have thus been linked to performance indices like profits, customer satisfaction, improvement in
d new product development. The variable component of the salary ranges from 8 per cent to 20 per cent.
sometime in July 2007 and rolled it out in September,” says Mishra. “Never before was this done on such a
speed.” The trade unions were kept on board, and they readily agreed to the new system. The results, say
on executives, show a drastic improvement. The productivity in 2007 was 2.87 tractors per person per month.
proved to 3.9 and the target is to hit 4 by March 2011. This will still be below Mahindra’s 4.5, but that is
Swaraj division does most of its work in-house.

g teams of Mahindra and Swaraj have been kept separate, and both are encouraged to slug it out in the
Territories too have not been demarcated between the two brands, though Swaraj has stronger brand
North. “Both the brands are free to compete wherever they want. If we make boundaries, the value of each
ened,” says Goenka. “Mahindra is number one in all states except two or three. Swaraj is not number one in
is number two in few states and number three in others. I have coined a term called collaborative
or the two.” Mahindra & Mahindra wants to set up a tractor factory in the South; it is likely that it will roll out
rs as well. That will help Swaraj spread into the southern markets. Of course, Mahindra is the chosen brand
eas markets and not Swaraj. Adds Goenka: “Swaraj is a very Indian brand and its focus will be India.”
mounted to motivate the dealers. Used to being taken for conferences to destinations within India, the Swaraj
taken abroad to Greece and Thailand by the new management. Careful audit of dealer satisfaction was
ore has seen an improvement, says Mishra, though he does not give the numbers. The dealers have been
a programme called Jeet lo dil (win the heart) on how to deal with customers before as well as after sale.
nce of each dealer is measured and the best performers are rewarded. The dealer network has expanded
uly 2007 to 615 now.
isfaction studies were also carried out. In 2008, the Swaraj division called existing customers from all over
show them the factory and products, and their opinion was sought. When the new tractors reached the
hey were called to see if the changes they had proposed were carried out to their satisfaction or not. “The
make them our brand ambassadors,” says Mishra. A service called SMS or Swaraj Mobile Service was
in mechanics would travel on motorcycles to fix any problem that may have occurred in the tractor. The
on also studies the CAP or customer-as-promoter score — will you recommend the brand to others? “The
araj improved from 8 per cent in 2008 to 61 per cent in 2009 and 71 per cent in 2010,” says Mishra. “This is
the industry, higher than even Mahindra.”
aps lies the lesson on how to turn an enterprise around. “We didn’t have to tear apart what was there; we just
oles. There was not enough energy, and that’s what we provided,” says Goenka.
contributed to this article
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ndra & Mahindra | Punjab Tractors | tractor market | Punjab

Pawan Goenka | Swaraj | Bishwambhar Mishra | Vineet

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BS Says

Punjab Tractors Ltd. to merge with Mahindra & Mahindra Ltd., PTL’s Swaraj
brand will continue to exist
Email

Written by battleaxe1973 on Jul-30-08 10:00pm

From: indiaautomotive.net

The Board of Directors of M&M and PTL today unanimously approved a scheme of amalgamation of
Punjab Tractors Limited (PTL), an M&M subsidiary, with Mahindra & Mahindra Ltd. Mahindra owns a
majority stake in Punjab Tractors Limited and had earlier acquired 63.33% stake in PTL in July 2007.
MHFL, a wholly owned subsidiary of M&M, currently holds 1.31% of PTL, and is also in the process
of being merged into M&M.

Under this amalgamation scheme, pursuant to provisions of Sections 391 to 394 and other relevant
provisions of the Companies Act, 1956, PTL will be merged into M&M and all its assets and liabilities
will be transferred to M&M at book values. The appointed date under this scheme is 1st August
2008. Upon the scheme becoming effective, M&M will transfer all the equity shares held by it in PTL
to a Trust, of which M&M is the beneficiary. M&M will issue its shares to PTL shareholders as on
record date, based on the swap ratio determined by independent valuers.

Anand Mahindra, Vice-Chairman and Managing Director, Mahindra Group, said, ‘PTL is a strategic
fit for M&M and its amalgamation with M&M will significantly add to shareholder value. Bringing
these two businesses under a single entity will also result in a common management focus, help
achieve greater integration benefits and reduce overall administrative costs.’

However, M&M has said that PTL’s Swaraj brand will continue to exist even after the company's
merger with automotive major Mahindra & Mahindra. ‘Swaraj brand of Punjab Tractors will continue
to exist after the amalgamation of PTL with Mahindra & Mahindra as this brand is an important asset
to us and we will like it to further excel,’ said Anjani Kumar Choudhari, President - Farm Equipment
Division, M&M.

An independent valuation exercise has been conducted jointly by Ernst & Young and N. M. Raiji &
Company. Based on this exercise, the share exchange ratio for the amalgamation has been arrived
at. Equity shares of M&M will be issued to the shareholders of PTL in the ratio of one equity share of
Rupees 10 each of M&M for every three equity shares of Rupees 10 each held in PTL.

The Scheme as approved by the Board is subject to such consents and approvals, as may be
required including that of the shareholders and the High Courts of Bombay and Punjab & Haryana.