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Sep 04, 2013, 01.19 PM IST | Source: CNBC-TV18

3% SUV tax hit sales, see revival in diwali, dussehra: M&M

Bharat Doshi, executive director and group chief financial officer, M&M is optimistic on the days ahead. He says the good monsoon seen throughout the country and the upcoming festive season should boost sales.

The SUV excise duty affected sales that led to Mahindra and Mahindra also falling victim to the slowdown in the auto sector, says Bharat Doshi, executive director and group chief financial officer, M&M.

Also read: Hit by slowdown, yes! But won't stop new launches: Motown

The country's leading SUV manufacturer's sales numbers for August 2013 stood at 37,897 units as against 45,836 units during August 2012.

"Mahindra was bucking the trend inspite of the general slowdown which started last year. This is because the whole SUV sector did well last year. Then came the famous SUV tax which was unfair and considering the economic environment, one would have expected measures which would actually encourage auto industry to grow. Instead came in the 3 percent tax came on SUV," says Doshi.

However, Doshi is optimistic on the days ahead. He says the good monsoon seen throughout the country and the upcoming festive season should boost sales.

Below is the edited transcript of Doshi’s interview to CNBC-TV18.
Q: It’s been extremely tough times for the entire auto sector and Mahindra & Mahindra was actually bucking the trend for a while but now sadly there are some cracks opening up in the utility vehicle space; tractors have been good but slight bit of moderation there as well. What is your sense on how much more pain this sector would have to undergo before seeing any kind of troughing out?

A: It is interesting. Yes, Mahindra was bucking the trend inspite of the general slow down which started last year. This is because the whole SUV sector last year did well. Then came the famous SUV tax which was definitely unfair and considering the economic environment, one would have expected measures which would actually encourage auto industry to grow but that did not happen. Instead of that, the 3 percent tax came on SUV.

Something which the industry has always accepted is that be it petrol, diesel price hike or subsidies, everything has an impact on the market. Then of course, the interest rates affects because the interest rates in the auto industry are not likely to come down in the near future. There is always a delay in purchase which one should keep in mind.

However, the major factor and this is something which one should keep in mind that it is if one looks at the preceding two years, the 2011-2012 and before that 2010-2011 both the years there were 28 percent growth for the auto industry. If one looks at the arrival of the average strength there would be a correction which would happen.

On the other hand I am very hopeful. If one goes back to the 2008-2009 crisis, one had negative auto industry growth which was at around minus 5 percent and immediately in the succeeding year, 2009-2010 and then 2010-2011, we saw 28 percent growth. I am hopeful that this will recover.

One will definitely not see signs of recovery by September-end. What they call the inauspicious period will come the last 15 days of September going into the first week of October. After that there’s Dussehra and Diwali, so there is hope in the third quarter.

There is also hope of a good monsoon and good harvest alongwith a promise that there would be a sufficient level of water retained so the next harvest will be also good. Keeping that in mind, one will see a recovery. I would like to believe that.

Q: Rather than compared to Lehman, post Lehman we had both monetary stimulus and fiscal stimulus we had space for it this is perhaps more comparable to 1997 and you are one of the few veterans who saw your industry as well as India Inc in general pull out of a six year slow down what is the sense you are getting of this. How long might it take and when do you see light at the end of the tunnel?

A: For everything there is an interesting scenario which is that the pace of change has changed. The pace has become faster. So, if one looks at that again here not as an experience but as a theory going forward, that if the pace of change was at a given level, compared to 1997-1998 and if one looks at 2007-2008 onwards, I call it the space mountain ride. The ride goes slow then fast, does this a couple of times and then, it suddenly goes at a much higher speed. Finally, it goes up and down.

The unique feature of that ride is that it is completely in darkness. Today we are in that situation. So, if you ask me any forecast it would be like some intuition, some guess work but it is not based on a fundamental theory but there is pace of change has changed and it has become much faster then the recovery also should come a little faster.

Hence, I gave the example of 2008-2009 as followed by 2009-2010 and 2010-2011 and I stuck to the auto industry example but one saw it in the gross domestic product (GDP) numbers also in those years.

M&M stock price

On November 26, 2014, Mahindra and Mahindra closed at Rs 1270.85, up Rs 14.80, or 1.18 percent. The 52-week high of the share was Rs 1421.00 and the 52-week low was Rs 847.00.


The company's trailing 12-month (TTM) EPS was at Rs 58.92 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 21.57. The latest book value of the company is Rs 270.60 per share. At current value, the price-to-book value of the company is 4.70.

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