Jun 17, 2013, 01.05 PM IST
For sentiments to improve, policy pronouncements need to see an immediate follow through action by the government, says Bharat Doshi of M&M.
Although rates have always had an impact on the sentiment, but in the last six months we have seen that rate cut is not being passed through.
ED, Group CFO
Bharat Doshi, ED and Group CFO of Mahindra and Mahindra (M&M) says the auto industry is likely to see growth of about 5-6 percent, with volumes growing at 10-11 percent for utility vehicle (UV) segment in FY14.
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"Market is very sluggish right now and therefore there would be an impact on the margins.For sentiments to improve, policy pronouncements need to see an immediate follow through action by the government," he told CNBC-TV18 in an interview.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: What are your thoughts on what has been a rather disastrous run for the currency so far and whether you would expect to see a very sharp impact on many corporate balance sheets because of what has happened with this rout on the rupee almost?
A: Last one month we saw the rupee being battered and we also saw some Reserve Bank of India (RBI) action, and I would expect that action to continue. One has to look at corporate balance sheets on basis of whether they are net exporters or net importers. People, who are net exporters, will benefit with this rupee devaluation but suppose rupee stabilises around 56-57, then one would see a different balance sheet structure for net exporters.
People who are net importers or who have large External Commercial Borrowings (ECB), which is not covered they will have an impact on their balance sheets.
Q: We have got an RBI policy today. Are interest rate cuts very significant or required at the current stage that we are in or would you say they are probably not the main culprit for the kind of growth sluggishness that we are witnessing?
A: Although rates have always had an impact on the sentiment, but in the last six months we have seen that rate cut is not being passed through. Actually there is a demand that instead of a rate cut let there be a Cash Reserve Ratio (CRR) cut at this stage to increase liquidity.
RBI is in a very difficult position with the Current Account Deficit (CAD) problem on one side and weakening of the rupee on the other side, so they need policy action. What I consider important and which Finance Minister P Chidambaram tried to say the other day that there is need for long-term measures and not quick fixes. He did come and announce long-term measures last September. However, what we need is not just policy pronouncements but right now we need some action to follow-through and that somehow is lacking.
So every time we see the parliament session coming, there is completely different picture of the nation. Then every quarter you see policy action by RBI or policy pronouncement, which does not fully convert into action.
Therefore, be it Foreign Direct Investment (FDI), be it project implementation, public sector investment etc on all these factors one has to see if there is action follow-through immediately after the pronouncement or not. That will really improve the sentiment.
Q: To focus on the auto sector for a bit, with specific reference to this passenger vehicle space would you expect to see far more exacerbated weakness for this pocket?
A: One is seeing the weakness right now in the first two months in the auto sector. Utility Vehicles (UV) have done well, but for the year as a whole, I do expect 5-6 percent growth for the auto industry and UVs may do up to about 10-11 percent growth.
Q: How do you see margins panning out from hereon? Given what you are seeing with the commodity complex and the kind of cost rationalisation that has already happened do you see any upside prospects for margins?
A: As one can see right now that commodity prices are benign and one is also seeing various reports where it is expected that crude demand and crude prices will also remain in a reasonable range with China weakening, there could be a possibility for upside in margins.
However, on the other hand market is very sluggish right now and therefore there would be an impact on the margins. Also, the UV sector faced its own challenge with an extra three percent tax, which was in a way an impact on the margin.
M&M stock price
On December 13, 2013, Mahindra and Mahindra closed at Rs 948.10, up Rs 5.75, or 0.61 percent. The 52-week high of the share was Rs 1026.45 and the 52-week low was Rs 741.50.
The company's trailing 12-month (TTM) EPS was at Rs 59.31 per share as per the quarter ended September 2013. The stock's price-to-earnings (P/E) ratio was 15.99. The latest book value of the company is Rs 238.22 per share. At current value, the price-to-book value of the company is 3.98.
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