How Mahindra made a success of Swaraj tractors

While Mahindra & Mahindra has been in the news for its popular SUVs and the takeover of SsangYong, at home, it has turned around the Swaraj tractor manufacturing unit, invested in its processes and people and in the process enhanced its own stature as India’s leading tractor manufacturer.

Since 2007, when M&M acquired Punjab Tractors Ltd (PTL) and integrated the company with its Farm Equipment Sector as the Swaraj Division in 2008-09, the Swaraj brand has grown step by step.

The Mohali plant, which mainly produces under-40bhp tractors, is the oldest plant of the company and began operations in 1974 when five engineers from the Central Mechanical Engineering Research Institute of Durgapur developed an indigenous design of a tractor.

At the time, no other manufacturer had made an indigenous tractor. Hence, PTL’s first locally designed 26.5hp 724 tractor model took shape. It was given to the Punjab government which proceeded to establish the company.

Over the years, the blue-chip company, which rolled out around seven different models ranging between 20-55hp, began losing its grip on the market as productivity plunged in the absence of capital investments in capacity expansion and product development. This was further exacerbated by the union locking horns with the management.

Farming new growth

The period between 2002-2006 was a dark chapter for the company with the Punjab government deciding to offload its stake. M&M stepped in and things have never been the same again. The Swaraj brand shed its flab, and was able to cross the Rs 3,000-crore plus turnover till date from the Rs 969 crore in 2007-08.

At the time of the buyout, the Swaraj brand was profitable at Rs 80 crore. Following the acquisition by M&M, profit leaped to Rs 500 crore in 2011-12. Its market share rose from nine percent in 2007-08 to 13 percent in 2012-13 and sales volumes doubled from 35,000 units in 2008-09 to 69,000 units in 2012-13. At present, sales volumes are around 90,000 units.

With expansion underway at both the Mohali and the nearby Chappa Cheri facility where higher-horsepower tractors, harvester combines and forklifts are produced, production capacity is expected to touch around 110,000 units by next March cumulatively at both the plants as the tractor industry witnesses a boom.

In the long-term, the integrated Mahindra Farm and Equipment Sector (FES) has an ambitious target to achieve a turnover of Rs 25,000 crore with a 46 percent market share in the domestic market and three blockbuster products from the Mahindra and Swaraj brands. It is also aiming for the numero uno position as an international tractor manufacturer in terms of volume which is expected to cross 70,000 tractors globally.

Leveraging strengths

Harish Chavan, chief operating officer, who heads the Swaraj Division, says the division has leveraged Mahindra’s resources with M&M looking closely at three fundamentals to drive turnaround – product and network, internal processes and systems and employees.

“Earlier, the Swaraj brand had its own following but for some time there was a lull in terms of product refreshment and product features, in terms of new offerings and consumers. So we tried to look at it from that aspect and correct it. That gave consumers a lot of confidence. We also built the dealer network back into the product and back into the company.”

Interestingly, cultural changes among employees, in line with the Mahindra company culture, were an important initiative that helped win over the earlier militant factory union. Not being affiliated to any political party, the union was imparted training in the new production processes.

Driving this change at Swaraj was the adoption of TPM (Total Productivity Maintenance) and TQM (Total Quality Management). In fact, in 2012, Swaraj won the Deming Prize as well as the TPM Excellence award, a far cry from the 2007 era. Investing in people

The average age of the Swaraj workforce today is in the 20s, with the company running two shifts a day in the assembly and paint shop. At the time of the takeover, the average age was 50 years for the 1,000-odd workers. For the past four years, over 100 employees have been retiring each year and are replaced by fresh and young diploma holders from ITIs, says Ashwani Kumar Aggarwal, general manager – plant head. By 2016, only 150-old employees are expected to belong to the old guard.

At present, the two tractor plants produce 325 units daily and company officials say that demand exceeds supply. Chavan says a third shift will be the next step at the two tractor facilities before a new manufacturing set up is deliberated upon. Though there is no immediate plan to add a new assembly line, a new line in plant II as well as at the Mahindra facility at Zaheerabad near Hyderabad is in the pipeline.

The Swaraj plants manufacture 10 models. A joint venture with Kirloskar supplies the diesel engines for the Swaraj brand from an independent facility while Swaraj Automotives at Nabha, 20km from Patiala, makes vacuum-formed seats, recliners and adjusters for the tractors.

“We are investing for the future in manufacturing by replacing old machines, where they are not delivering consistent quality or for upgrading ourselves aggressively,” says Jitender Gujral, vice-president – manufacturing.

Swaraj's dealer network has also spread its wings. About 500-600 dealers are the channel partners and the attempt is to grow them along with the company.Special training is also being imparted to the dealerships. “We have the ‘Swaraj sales system’ that trains them in systematic enquiry tracking, on converting enquiries into sales and remaining in touch with customers,” adds Chavan.

The past year has seen the introduction of two new product models as well as two new variants with advanced transmission technology with a side-shift arrangement as well as higher engine technologies for the higher horsepower segment where Swaraj had been a laggard. Synergies with Mahindra technology at the backend with sharing of testing facilities and product development have contributed to the Swaraj R&D team’s inputs. The in-house R&D team at Swaraj is now working on developing a 50-plus horsepower tractor upwards to 70hp to plug product portfolio gaps. Some of the new models are expected to be launched next year.

Chavan says that the 50-70hp tractor category is an emerging segment. Being a pan-India player, this necessitates the company’s presence across various horsepower segments. As the consumer becomes more knowledgeable about product-related aspects, demands will also rise. In terms of market trends, the existing product finish will go up and the existing product finish may not be acceptable to customers. An increasing trend would be towards enhancing the comfort aspect and better ergonomics. Here, the use of side-shifts or better gearshifts, power steering, good-quality brakes and elements that lower fatigue, especially if the tractor is being driven for many hours, will play an important role.

Meanwhile, commonisation of components between the Mahindra and Swaraj brands is another area that is being worked upon to increase frugal engineering and make products available at an attractive price.

The focus today is on tapping the domestic market predominantly with limited exports to neighbouring countries like Sri Lanka, Nepal and Bangladesh and some African countries. Higher- horsepower tractors could be also exported in the future. Overall, it's quite clear that the Swaraj tractor brand is giving competitors a run for their money. It is slowly garnering market share and volumes and farming new growth.



INTERVIEW WITH HARISH CHAVAN, CHIEF OPERATING OFFICER, SWARAJ DIVISION

How is the industry faring and what is the expected growth?

The industry has been growing very fast. This year has been very good with industry growing at 25 percent due to good monsoons, replacement demand and good crop prices. We never expected this kind of growth but the pent-up market demand over the past two years and good market sentiment due to a good monsoon, supported by good prices, has enabled growth. We are expecting this growth to continue, though not so robustly in the future.

We expect the industry to grow at a CAGR of 7-9 percent over the next three years. The tractor industry goes through a cycle — once going through a period of buoyant growth and then tapering down. We do not expect a substantial change in emission norms till 2016.

The Swaraj brand's main focus is 35-50hp tractors. Are you looking to go lower since M&M has one in that segment?

There is a market in that area but, at present, Swaraj is trying to work on the portfolio that we have. The applications that are undertaken by the lower-horsepower tractors are currently being taken up by some of our existing tractor models. So we are working with that model to satisfy consumers. There is enough opportunity to address the consumer requirement through our 25hp tractor. How has the marketing strategy and credit availability for tractor buying remodelled after Swaraj’s takeover?

The biggest change is how we look at the customer and his requirement. This company has got the Swaraj DNA and Mahindra has further built on it. The Swaraj Division has further enhanced its ability to know the customer, to connect with him well, engage with him and keep contact with him. We run the Swaraj Sapthah where we call 25 customers every month across India — they come here and see our factory and the entire Swaraj team talks to them about what they feel about our product. We encourage them to speak about areas where we can improve.

In terms of finance, we have the patronage of M&M Financial Services which has given an additional boost to the dealer network and has impacted dealer and customer confidence favourably.

How much has Mahindra invested till now and what are the plans going forward?

Mahindra has invested quite a lot in product development, resources and in building the skill level of workers. We are making the organisation process-centric and product-focused. Hence, a lot of changes have been made in changing machines, in techniques and in manufacturing processes.

We worked with Japanese gurus for the investments in skill building and, more importantly, in helping employees come forward to make the organisation a better place. We ran extensive employee involvement programmes for quality improvement, productivity increases and cost reduction, and in training and encouraging them to better themselves. Now our quality circles are gaining international recognition every year, so this is an investment in intellectual capital and HR.

How were the unions won over?

We listened to them and convinced them that what we were doing was for their betterment. Firstly, we engaged with them and involved them in various activities, improved communications with them and invested in the welfare of people. The new canteen building is one example. We redid the offices and changed the policies in line with progressive Mahindra policies. Once the unions accepted that we were not a financial investor but here for the long term, their approach changed.

What's the next manufacturing change in the pipeline?

We are following TQM practices. We are a Deming company and have also won the TPM Excellence award. TPM is all about improvements in the manufacturing process and the next level of examination is the TPM Consistency award. We will be taking part in it in the next two to three years.

SHOBHA MATHUR