Sales optimism hinges on next monsoon season: M&M

Auto major Mahindra & Mahindra reported a 21 percent increase in the total sales at 41,590 vehicles in November.The company had sold 34,292 units in the same month last year.

The company's tractor sales grew 47 percent to 20,819 units in November 2015 as against 14,207 units during November 2014.

In an interview to CNBC-TV18, Rajesh Jejurikar, chief executive- tractor and farm mechanisation, Mahindra and Mahindra, says the base effect has aided positive surprise in tractor sales. 

While Jejurikar is cautious on the current demand outlook, he hopes the monsoons next year won't be bad as historically there are rare cases of a third year of bad monsoon.Below is the verbatim transcript of Rajesh Jejurikar’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: Can you take us through what went so right; it is a 42 percent uptick that Mahindra and Mahindra (M&M) has reported in its tractor sales. So is the downturn well and truly over?A: Firstly, we are delighted that we have had a 42 percent growth and we do realise that we have outperformed the tractor industry in this period of time. Two things we need to keep at the back of our mind when we look at this data, there is a base effect because as you know and I am sure you have seen in many other categories, last year the festival season was in the month of October and this year it has got divided with Dussehra in October and Diwali in November. So, there is some festival effect that comes into this growth rate. We did see a positive sentiment coming into the festival season. I think that being said, we would still look at the year with caution but hoping for good times to come. It is going to take some time for cash flow to come back into the rural economy and a lot will depend on how the winter crop goes. However, most importantly, a lot will depend on next monsoon because there is a cycle of revival and that cycle of revival is going to take a few months from where we are today. So, while November has been a very good performance, it is on the back of a base effect but we do believe we have outperformed the industry quite significantly. So, we are very happy with the way November has gone. Latha: Since you have said that couple of times that you have outperformed the industry, what may the industry have grown at? A: I am talking about market share. We never share our month market share numbers.Latha: Industry grew at 20 percent you think?A: Industry grew around 29 percent odd.Sonia: The absolute numbers are 21,700 this time versus about 28,000 last month, i.e. in the month of October. Of course there is a festive season impact as well but can you give us an average run rate of what the tractor sales could be in December and January? A: We never give an outlook on our numbers and right now even if we attempted to give one, we have to be very calibrated to taking each month and each quarter at a time. There is a lot of fluidity in the way the market is responding and hence volatility. So, as an organisation, our role is to be very flexible and responsive in our supply chain, seize opportunities as they come.Sonia: You can’t give us numbers but you did mention that it will take some time for the cash flows to return to the rural economy. However, can you say with any fair degree of certainty that the worst perhaps is over as far as the rural slowdown is concerned?A: I think the way if one was to wear a little bit of an optimistic hat this is the second and monsoon. If you look at the past data, you rarely have a third bad monsoon. So, the way we look at it is, yes it is two bad monsoons and it is not going to be a third bad monsoon. So, we should have a good next year which should significantly improve the picture but it is all a question of wait and watch; lots of factors at play, as you know there is an issue on minimum support prices, so, it is a variety of things that have affected rural demand and cash flow. Latha: I empathise with the view that you don’t want to extrapolate October and November into the rest of the year but would you say with some confidence that it will at least be above 20,000 per month run rate? Give us the direction; directionally are these six months better than October-March of the previous of FY15? A: What we have done is we have shared an outlook in the past for the full year and that is probably going to be a negative 5 percent tractor industry for the full year i.e. the April to March period. The rest, one has to wait and watch and see what happens in what month and what period of time.Sonia: In FY17 what kind of tractor industry growth would you expect? A: I wish I was able to give that number. Latha: How much were you negative in the first six months? If you were to give me first half (H1) versus H1 previously, you were negative by how much? A: I think let us not try and get on to calculations right now. I think I have given you a number for the year. We are left feeling good about November and let us all hope and work to try and make sure that we can see momentum back over a period of time.