SUV segment hit by diesel price hikes: M&M

This month, growth in Mahindra and Mahindra's SUV segment has come down to almost around 4 percent, as overall industry sentiments are poor, says Pravin Shah, chief executive, automotive division, M&M. Regular hikes in diesel prices have impacted the company’s overall growth aspirations. Also, the slowdown in the Sri Lanka and Bangladesh markets continues.

Here is the edited transcript of his interview with CNBC-TV18 Q: What is happening on the sport utility vehicle (SUV) front? Are the sales plateauing there? Are you seeing some big competition from the likes of Renault Duster and Ertiga? A: As you know last year the SUV segment had grown unprecedently. If you look at this month, that growth has come down to almost around 4 percent. Last year, the growth was on account of the new addition of the product including Ertiga and Duster. Inspite of that, we have grown in the SUV segment by 5 percent and that too it is over the 54 percent growth than what we had in May 2012.  Overall industry is not in a very good situation; the sentiments are poor. In that situation, the type of 5 percent growth for our product; we are happy about it. Q: The impact may be accumulating. I would like your view on how you see things proceeding in June and July; diesel prices are now getting regularly revised higher. It reduces the attraction of the diesel vehicle. The bulk of the products that you manufacture as well there is the overall economic downturn which doesn't seem to be going away. So should we expect this 5 percent to become 4 percent and get lower in the months to come? When would you see a reversal at all? A: The way fuel prices are going up and down, the diesel and the petrol price gap which has come down to Rs 13.7 versus Rs 32 in May 2012 has had a dampening effect. Plus, the SUVs do bear a 3 percent additional tax which came in as a part of the financial Budget starting March 2013. This has had an impact on our overall growth aspirations. June and July are going to be the challenging months. But considering the product portfolio at different price points, we still continue to be cautiously optimistic. We would like to see some growth in both these months. Q: XUV was a big growth driver for you; may be this or next month will have the launch of Ford as well that is EcoSport’s much awaited vehicle. Internally, have you made any assessment going forward in months to come? Of course the base of XUV 500 will go up quite significantly. Will there be a risk of year-on-year decline too in XUV sales? A: The products what you are talking about that will come in this segment are quite different compared to XUV 500. As such we do not see direct impact on XUV 500. However, the SUV still has a good potential as a segment to grow and any new addition into this will surely expand the market. The market initially in few months may have impact on some products. But we have products at different price points. Our old products like Bolero and Scorpio are in the similar price range. One doesn't know at what price point the new product that you talked about is going to come in. But surely those products are still seeing good preference. They are proven products. So we continue to be hopeful that we will have our leadership position continue into the SUV space. _PAGEBREAK_ Q: Does the rupee depreciation make it attractive for exports or immediately it is not going to make a difference? A: If the rupee depreciates further it is beneficial to exports. But if you look at the global situation and especially when our export portfolio has a good percentage – almost 45-50 percent of our export volume comes from the India look alike markets like the neighbouring markets of Sri Lanka, Bangladesh, Nepal. Nepal continues to do good, but Bangladesh has currency issues. Sri Lanka, with the levy of additional duty which was increased by 100 percent, has an impact on our export volumes. That is where actually we have degrown in the month of May. In May too we had lesser volume as compared to last year. So, if rupee depreciates it definitely helps exports, but provided you continue to hold your volumes. But the export markets of neighbouring countries where we hold almost 50 percent of our exports are going through a difficult time. Q: In which case there could be a pressure on margins, isn't it? The same rupee depreciation makes price of several raw materials higher which could also begin to impact the domestic producers of those raw materials. A: Fortunately in case of our products offering, we have very limited import content and a direct import is not likely. In the last few months the commodity prices have been stable and in the foreseeable future – in the next couple of months, we don't see that the commodity prices are likely to go up. So, the impact of rupee depreciating further does not impact our overall material costs. Q: You told us that your passenger vehicle segment; you expect this continued – may be under 5 percent single digit growth continuing but you will remain in growth mode. What about the three wheelers, that has shown a cut – I agree it is a small part of your entire portfolio but does that get worse? A: The three wheelers again you need to see it differently. The passenger part of the three wheelers had seen growth last year, but the load carrier of the three wheeler has degrown. In our case, we have seen a growth in the load carriers and we continue to see – though it is a smaller part of our overall three wheeler portfolio. We see three wheeler cargo growing. However, the passenger segment which has degrown even in the month of April and May will be under pressure for variety of reasons. The three wheeler passenger depends on the permits which are received by different states and as you know there are certain issues and concerns connected with the issuance of permits. So, that also has a big bearing on industry volume or its performance.