"If the economic turnaround that we were seeing in Q1 continues in Q2, Q3 and Q4 then I see no reason why auto industry should not be at the forefront of that turnaround," says Pawan Goenka, President, Auto & Farm Equipment, ED, Mahindra & Mahindra.
After an abysmal FY14, the auto industry is gearing up for a turnaround in FY15, says Pawan Goenka, President, Auto & Farm Equipment, ED, Mahindra & Mahindra.
In an exclusive interview to CNBC-TV18’s Shereen Bhan, he says,"FY14 clearly was a bad year for industry overall and also for M&M, FY15 we are beginning to see the turnaround in the industry. The last three-four months have been very good for the passenger vehicle segment of the industry where we are seeing a growth now of about 6-7 percent."
Sharing the auto major's revival blueprint, Goenka says that he is betting big on the upcoming launches which include a compact utility vehicle. M&M is not giving up on its two-wheeler business, which has been making losses. Goenka is also confident that Ssangyong, which was acquired three years ago will break-even soon. With ssangyong in the bag, the company is looking to enlarge its global footprint as they are on the prowl for acquisitions.
M&M reported 7.18 percent decline in total sales at 35,175 units in August versus 37,897 units in the same month last year. Sales of passenger vehicles, including Scorpio, XUV 500, Xylo, Bolero and Verito, stood at 14,140 units compared with 15,821 units in August 2013, down 10.62 percent. Four-wheel commercial vehicle sales declined by 5.41 percent to 12,975 units in August 2014 as against 13,718 units in the year-ago month.
Q: How confident you feel about the year ahead because FY14 I would imagine is a year that M&M would like to forget or put behind because you have actually seen volumes go down 7.74 lakh versus 7.87 lakhs in FY13. That is a degrowth of about 1.6 percent. Do you feel that you feel be able to improve volume growth from hereon?
A: FY14 clearly was a bad year for industry overall and also for M&M. FY15 we are beginning to see a turnaround in the industry. The last 3-4 months have been very good for the passenger vehicle segment of the industry where we are seeing a growth now of about 6-7percent. Commercial vehicles still are in a degrowth phase. We do expect that second half will bring growth phase for commercial vehicle industry. Overall if the economic turnaround that we are seeing in Q1 continues in Q2, Q3 and Q4 then I see no reason why auto industry should not be at the forefront of that turnaround.
For Mahindra specially we have had some segments where we have had a degrowth even in the growing scenario of the industry, specifically the Compact UV segment where we don’t right now have strong products as we have talked about in the past and that will start happening in 2015 calendar year. That is where we will see a turnaround of our market share in that segment. However the pickup segment we are doing very well, the heavy commercial vehicle segment now is also beginning to see a turnaround. So, overall we are kind of following the industry trend of slowly the turnaround taking place.
Q: How soon are we going to see you launch your compact sports utility vehicle (SUV), I know you have about two or three planned for FY15, how soon are we actually going to see them out in the market and what do you hope to do in terms of being able to recoup market share?
A: We have three new platforms that are being launched in the calendar year 2015. One of those is in the small commercial vehicle segment and two of those are in compact UV segment and these platforms obviously have been planned three to three and half years ago. We think we have captured the need of the consumer. Of course time will tell whether they succeed against the hyper competition that you mentioned. Clearly, this industry has reached a level which we had not anticipated three years ago in terms of the kind of interest that UV segment, especially the compact UV segment has.
Q: You missed the bus in that sense?
A: No, I won’t say that. We perhaps could have in hindsight started a year sooner but we are where we are and we will come out next year and we will have good products and should recoup the lost market share in the UV segment.
Q: How competitively will you need to price these new products and what will that then result in, in terms of the margin picture?
A: If you have seen the past record of Mahindra we have never fallen short pricing our products competitively in the market place. We have had some big hits because of the product that we have offered in terms of feature, content, value and also the pricing that we have done. So, I wouldn’t be concerned about whether we can price them competitively.
Q: My question is will you be forced to price them more competitively than you would have liked to and what would that then result in as far as margin pressure is concerned?
A: We have to be realist. Any product that we bring out there are two competing forces; one is the financial performance and return on the investment and the second is the market demanding in terms of pricing and third where our brand is producing in that overall competitive scenario. So we have to take that call. Nobody knows who the right call is and we have done that correctly more often than not.
Q: So which one will be first off the block. Will it be the smaller CV or will it be the smaller UV?
A: That is not something that I can share right now.
Q: But the first half of calendar year 2015?
A: Something will happen in the first half.
Q: What would the priority be, to get the commercial vehicle off first or get the UV off first?
A: The priority is not what we may wish for right now. The priority is in the sense when we started the development and where we are and if we could wish then I will launch it tomorrow, but it is something that has to go through the process. Therefore it is not based on what we want to do, it is based on what the line up is.
Q: This will of course enjoy the small car benefits because of the constraints that you had to work within?
A: Yes, of course the compact UV will have the benefits. The four metre is the mantra and 1.5 litre diesel engine or 1.2 litre petrol is the mantra. So everything that anybody does in a smaller segment will always be 3995 mm or 3990 mm on 1.497.
Q: I am just quoting from one of the brokerage report which says two wheeler subsidiary losses have widened further and the continued need of equity support in this category is a cause for concern. What do you intend doing as far as the two wheeler business is concerned?
A: Mahindra Group is where it is today because we have taken long-term calls. We are in three or four such businesses today which are loss making; Mahindra Retail, Mahindra two wheelers, the truck and bus, Mahindra Reva and each one of these has a potential for us to become a mainstay for us to create significant market cap for our investors three-seven years from now. Some of these may not succeed, some of these would succeed. So we are betting on four to five things.
Q: How long and what kind of patience level do you have as far as some of the subsidiaries are concerned?
A: We have much longer patience than perhaps what the stock market would like us to have.
Q: Is another global acquisition a part of your strategy for growth at this point in time?
A: Global acquisition is something that we continue to remain interested in. However, we do not have a specific target that we must do something in the next two years or 18 months. If good opportunity comes our way we will take a look at it but we are not going to go after anything which does not make rational sense for us.
Q: Anything on the radar at this point in time?
A: We are always talking. It is interesting for me to see that if I meet somebody then the next day the headline is that we are going to acquire such and such. It doesn’t work that way.
Q: Would that be for the core business, the SUV business or do you believe that you may look at it for some of your distressed subsidiaries so to speak?
A: Acquisition does not have to be in the core business, but we are not going to go after something that is off limit for us. We are not going to do any acquisition for getting into a segment that we are not in, but a right opportunity may come into a segment which is not our mainstream and if that opportunity comes we will take a look at it.
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