Auto demand is reasonably steady, says M&M

There have been lots of concerns in the auto sector because of the poor monsoons this time around. Some of the concerns centered around Mahindra & Mahindra (M&M), but their results were good. Whatever they lost in the tractor’s division was more than made up by the strong performance of the auto segment.

In an interview to CNBC-TV18, Pawan Goenka, president automotive sector of M&M says the demand is reasonably steady. He further says the UV segment has been exploding. The growth, so far, has been more than 50%. "I would expect that for remainder of the year, the UV segment growth will remain very robust," he adds. Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee. Q: Is auto demand still as robust as it has been for the last few months? A: For Mahindra, ofcourse it has been pretty robust because of the segments that we are in. The UV segment and the pick-up segment are doing very well. Even for the overall industry, the demand is reasonably steady. The passenger vehicle segment is growing at about 7-8%. That is not too far from what we had expected for the year. Therefore, I would think that we are in a reasonably okay situation, not great, but reasonably okay. Q: What kind of growth can one be looking at for the UV segment this year? A: UV segment has been exploding. The growth, so far, has been more than 50%. That is on the strength of some of the existing products doing well for the industry and also some new products that have been launched, creating new segments. Therefore, I would expect that for remainder of the year, the UV segment growth will remain very robust. I do not know if it will remain at more than 50% that it has been for the last four months, but certainly very robust, much higher than the passenger car segment. Q: What kind of numbers is the XUV500 settling down at after the strong initial response? A: We are producing about 4,000 in a month now, as we had talked about early part of the year. So, we have reached that production capacity. We are selling at that number obviously. We still have a waiting list of about 15,000-16,000 vehicles. That will take us about five months to complete. Therefore, in a way, our order book is completely full for the next four-five months. Q: Is there any possibility of upping the capacity? A: We have increased quite rapidly to come up to 4,000 level. We will go up marginally more, but not too much more from about 4,500, maximum 5,000, but we won’t go beyond 5,000. We are also ramping up on export of XUV. We have already launched in South Africa, we will soon be launching in Chile, we have launched in Australia. Therefore, the export number should start coming in very soon. Q: Can you give us some update on your global subsidiary Ssangyong etc and what kind of turnaround you may have experienced there? A: Ssangyong in terms of volume is doing as per the plan. We are running this year at about 10,000 a month on an average. Therefore we should be ending the year at about 120,000-121,000 vehicle sale, which is 7-8% growth over last year. That is as per the plan. _PAGEBREAK_ The new product that we have launched that is Korando Sport, the Rexton W have done very well both in the domestic market and overseas market. Therefore, the volume turnaround has more or less reached a point where we are very comfortable. As far as profitability is concerned, we have had two quarters of positive EBITDA which is encouraging that is putting on a sort of financial recovery. We expect that not this year but sometime next year, the year after we should be in a positive EBIT situation. Q: What is your strategy going into this festive season this time around because the market is focused on the mini Xylo, is that going to be the key plank of your strategy going into Diwali this time? A: Going into Diwali we have several products that are doing very well, therefore we will be sort of pushing on all the cylinders - the Bolero, the Scorpio, the Xylo, the Verito which after the rephrase is doing extremely well. The new Xylo will be launched pretty soon. All of these products together should give us a very strong festive season.
We also have our commercial vehicle segment with the pick ups and with maximum range it is doing well. We would expect that for M&M, there will be a lot of smile and cheer in the festive season. Q: Any ballpark figure on what kind of price range you are looking at for compact Xylo? A: That is not something that I can talk about before the launch, infact we are still in the midst of deciding what the right pricing will be. We are looking at our various cost competitive scenario and then decide what the right price will be to launch that vehicle. Q: So far you have seen no monsoon impact in any of the markets for the UV segment atleast? A: For the UV segment we have not seen any impact. To some extent that perhaps also is because we are running almost all our rural products at full capacity. Therefore, we are not meeting the demand and hence we have not seen any impact. Q: The other side of the story is tractors. Is that much more sluggish than the UV segment? A: Yes, I would say so. When we had started the year, we were looking for a growth rate of 5-6% in the tractor industry. Right now, we have taken that down to flat to 2% as a growth rate for the industry. M&M also is pretty much in the range that the industry is at. Therefore even though the last couple of weeks have been very good in terms of rains and the monsoon deficiency has come down to as little as 14% now and there are only 2-3 states which have drought like conditions. The sowing has been very good, pretty much at the long-term average. Things are looking up, but I still would think that we will not see any major growth this year in the overall tractor industry. Therefore we will have to manage with the similar volume that we had last year. Q: How significantly will the revenue mix change then by the end of this year between autos and tractors and what implications could it have on your overall margin profile? A: The auto growth is clearly 20-22% against the tractor growth of being flat. Therefore auto will contribute a little bit more in terms of overall percentage of revenue. We don’t talk about the profitability between auto and tractor. But as you would have seen in Q1 even though we had a higher revenue mix coming from auto, profitability was maintained rather well. Therefore we would hope that we would continue to turn in good financial performance for the rest of the year, but that depends on many other factors including what happens to the commodity prices, what happens to ability to take on price increases. Based on all of that we will strive to continue to manage our profitability.