Will have petrol variant for all diesel cars in 5 yrs: M&M

Mahindra and Mahindra (M&M) is planning to introduce petrol variants of all its cars in the next 5 years, says company executive director Pawan Goenka.Speaking about the company's performance, he says it has witnessed growth in passenger vehicles and heavy commercial vehicles, but growth has not been uniform and not in all segments. The segment that is suffering the most is the small commercial vehicle, which has had almost three years of de-growth now, he told CNBC-TV18.He also spoke about the much-awaited TUV300, which is a small compact SUV product.

Below is the verbatim transcript of Pawan Goenka’s interview with Ronojoy Banerjee on CNBC-TV18.Q: Let us talk a little bit about tax reform, Goods and Services Tax (GST) and for any manufacturing sector GST is very important and automobile sector perhaps stands to gain the most if GST is passed. But looking at what happened in the Monsoon Session. Do you feel today political acrimony is the biggest threat to reform?A: I would tend to agree with that statement. India is sitting right now in a very good spot. The respect for India, the stature of India in the global eyes has gone up in the last year or so and with what is happening in the environment, with what is happening in China, with the difficulties that many of the other advanced economies are facing today, if India can get its act together, it can really take very quick steps forward. But that cannot happen unless the government and the Opposition work together. This word opposition perhaps should not have been called opposition but that is what it is. It is not about opposing, but about constructing together and moving forward.I am not trying to make a political statement on who is right and who is wrong. I am saying that many very important things just are not moving forward because of the attention being diverted to something else and not about what we need to do today to take advantage of what our country can achieve in the next 2-4 years.Q: So every one positive step we take forward there is old politics or things like that that is pulling us backward.A: Absolutely. Then the government, all members of parliament, not ruling party and opposition party, have to work together to take India forward.Q: Let us talk about a year and 3-4 months since Narendra Modi became the Prime Minister and clearly his focus a lot has been on the ease of doing business. On the ground what are the visible changes have you seen. Leaving the rhetoric aside, let us talk about in reality what are the changes that have been introduced and if you had a wish list, if Mahindra and Mahindra (M&M) had a list of things or areas that you would want the Prime Minister to look into what would those areas be?A: Again I would go back to the question that you just asked that a lot of things that need to happen and perhaps government has right intention of making them happen are not really happening because of state and central politics. In some cases because of opposition ruling in some cases and election politics in other cases and many things really are not happening and therefore reforms that we could have liked to see have not happened to the extent that the expectation was.But, the things that had come in through SEBI or corporate affairs ministry as new company act have been simplified in the last 3-6 months. There the things were becoming absolutely onerous on businesses in terms of reporting, compliance, which have not been adding value have been somewhat simplified.There are efforts going on in Land Acquisition Bill that is not moving anywhere. Though it is seen as something which is a step backwards from the farmer's view point but it also is necessary for ease of setting up a new business. The distressing period for setting up a new business has to come down. That is part of ease of doing business. So, some small things have happened but the big-bang things we are expecting to see have not happened.Q: Because for reform you need the government as much as the opposition or whatever we call, government on its own cannot push through reform?A: That is correct.Q: Another area of reform has been the possible scrappage scheme or the cash for clunkers scheme. Nitin Gadkari recently announced the modality saying that we are still waiting to hear from the finance ministry that has been on the auto industries wish list for long. We saw the impact it had in UK where sales totally turnaround and may be the same may also happen in India. What is the auto industries view on scrappage scheme?A: Our view always has been that given that India has many very old vehicles on the road and these very old vehicles are fuel inefficient, not good for the environment and they do not have as much safety in it as the modern vehicles do. Therefore, it will be good for the country to not have those vehicles on the road and if they can take them off of the road then it is overall a better thing to do.Question always comes up who will finance it and the answer is that if this taking the old vehicles out of the road generates fresh revenue in terms of the indirect taxes, then can some of it be used to incentivise taking these vehicles out of the road? That is what Nitin Gadkari has announced that we will give X amount of money for taking these vehicles off the road. Whether that is enough or not enough I cannot say but that is just a start.Q: But as far as incentives are concerned for this scheme, this scheme seems to be modelled more at least the idea comes again from the UK’s current scheme of 2009 and where the government had given usually a discount of about GBP 200 which were equally bourn by the government and the auto makers. You think in India, owing to the fact that there is so much of price competition; there is a possibility that the auto industry, the auto sector, will also be willing to bear a certain amount of discounts to incentives scrappage?A: It is going to be left to individual manufacturers. If a manufacturer wants to come forward and say that in a situation like this I am going to double it or pay 50 percent, that is up to the individual.In fact, that should not be regulated because only competition will decide that. Depending on what I see as value proposition for my company, how somebody else sees it, that might happen. But, not everybody has the margins available to be able to match the incentives given by the government and therefore, I do not think it should be forced upon auto makers to do that.Q: But, will Mahindra and Mahindra (M&M) have the room if at all such a policy comes into place?A: It is too early for us to react to that because I do not know what the scheme will be in detail and it finally comes down to how much of money can the company spend on marketing because this is in a way marketing initiative and we will have to take a holistic look at that. Q: Let us shift gears to a more macro picture. We saw the Chinese yuan being devalued. Now, the Indian steel manufacturers are saying that the imports are going to get even cheaper. So, in that case, does the auto sector stand to gain out of the inadvertent beneficiary of the Chinese devaluation?A: If you look at Chinese devaluation, it has a cascading impact in some sense. The biggest impact that you will see is in commodity prices where clearly China in the very big consumer of all commodities; what happened in China has an effect everywhere. So, as a result of that commodity prices were already soft and are becoming even softer with the yuan devaluation, which would definitely benefit the consumers and original equipment manufacturers (OEM) alike in terms of the input cost and that is good in the short-term at least for the economy.In the longer term, one has to see whether it has an effect on export of vehicles from India. And, there is a difference between export of Indian developed product and export where product just manufactured in India is one of the manufacturing locations. There, if Chinese currency devaluation makes it cheaper to manufacture in China and export from China, some of the export might shift to China. So, that might have an effect on overall export. Other than that, I do not think something sort of very major to happen in terms of the Indian automotive industry.Q: Globally the large discourse, really these days is how countries have to get used to a new normal, lower growth rates. In fact, Christine Lagarde, International Monetary Fund (IMF) Managing Director called it ‘the new mediocre’; that is what she said. And the same now also holds through for emerging markets. So, given the fact that there was so much of promise for the India market, there were a lot of investments being made. Do those expectations now need to be tempered somewhat in light of what we are seeing globally, in light of new literature that is saying that no, we have to now get used to lower growth rates. The growth rates that we had projected earlier were delinked from reality.A: I do not think anybody is talking about India having to redefine its norm for growth rate today. We are still talking 7.6 percent growth rate in India. And again, I go back to working together as a nation for seeing how our economy can grow. Today, India is sitting again, repeating myself, in a very good situation and I will not comment on whether a norm has to change for all economies. But for Indian economy right now, the norm does not have to change. If it changes, it will be our own doing and not because of the environment that we are in. And I still believe that we have a lot of potential to do very well and emerge as one of the fastest growing nations in the world, even overtaking our neighbour, China, which many believe is bound to happen now. Therefore, I do not think India should start redefining norm yet.Q: We are seeing now an increased competition in your bread and butter segment. We have been seeing this for quite some time now and in April to July we also see a marginal drop in your market share vis-à-vis April to July last year. What is Mahindra and Mahindra (M&M) trying to do to not only protect its turf but also increase it from around 36 percent that it is currently in the UV segment?A: As we have been saying for some time that the UV segment has really been redefined in two distinct segments. The traditional UV’s the kind that Mahindra’s has been making and has had very high market share in the new sort of crossover kind of UV’s and where we do not have a strong product. We would be launching products in this segment soon.Our TUV300 is a small compact SUV product that will be coming out just around the corner now. SUV 101 will be coming out little bit later in the year. With these two products, the brand new products that we are launching we hope to pick up volume and pick up growth that we have not had in the last couple of years.Q: When do we firstly see the official launch of the TUV and secondly in the short-run, looking at the condition of the market, can you give us the sort of sales volume that you would want your team to deliver?A: The TUV 300 launch is slated for September 10, so just around the corner now. It is these days very hard to predict what the volume will be. There are many launches, some very successful, some couldn’t strike that excitement.I hope that we are in the first category and not the second but we will have to wait and see, we have worked hard at this product, it takes four years, Rs 1,000 crore to develop a brand new product.Q: How much have you invested, about Rs 1,000 crore?A: Roughly about Rs 1,000 crore depends on what all you include or not include. So roughly about Rs 1,000 crore and most of it goes into the setting up the plant for the new product. We will give out all those details when we launch the product.Q: You are hoping that this is also going to increase your market share from 36 percent level or so?A: Absolutely. So we believe that the volume that we will get for this product will largely be new volume for us and not coming out from our existing products and therefore, whatever volume it is, will be giving us growth and therefore market share.Q: Let us talk a little bit also about diesel vehicles because once again we are seeing this whole debate about whether it is polluting or not polluting and the general consensus seems to be that it is polluting. We have seen the national green tribunal also stepping in with 10-year old diesel vehicles. As the market leader in diesel vehicles -- when we think of diesel vehicles, we think of M&M -- firstly what are you doing to dispel those notions and secondly how are you going to address this anti-diesel mindset environment that we are sort of witnessing right now?A: There are certain arguments that never die and diesel being one of those which since the time that I have been in this industry, have been hearing and participating in that debate whether diesel is good or bad. The fact is that there are pluses and minuses, we know that well, sometimes minuses get talked about disproportionately and fortunately. However, diesel fuel is the best fuel when it comes to global warming, climate change, green house-gases, 20-25 percent lower than equivalent petrol vehicle, that is well-known, well-established given that we are concerned about that. That should also get some weightage. It is true that diesel do emit higher particulate matter (PM) compared to a petrol or CNG but it is not true that diesel is the primary culprit for the situation that we are in especially when we talk about BS4 vehicle both commercial and personal and BS5 and BS6 that will happen in 4-8 years time, diesel as far as PM is concerned is pretty good.A lot of effort has gone in technology, a lot of money has gone into the equipment that is used to reduce the PM and NOx emission from diesel. One has to take a balanced view at it; I don’t think it is a 0-1 game. Diesel has a place in the auto ecosystem as when it comes to commercial vehicles, there is no match for diesel. When it comes to personal vehicle -- if you look at the factor about what diesel means for CO2 emission and if you look at the performance that diesel gives to the customer, if you look at the effect of that in terms of how diesel will help us to reduce the crude oil import, which is not a small number, it is a fairly large number that can come in by use of diesel fuel.One has to balance out what it means for PM emission and to accelerate reduction of PM from where we are today. That can happen partly by BS5 coming in and partly by removing the older vehicles from the roads, which perhaps emit quite a high level of PMs but we should also look at what portion of PM contribution is coming from diesel vehicle, it is very easy for one to beat down on diesel vehicle but nobody is looking at 80-90 percent of PM emission that is coming from sources other than diesel vehicles.Q: But does it worry you that if such a mindset persists for a long time considering the courts are also not taking a view and taking a view against diesel that sooner rather than later, your own products will be impacted? So, what is your strategy to de-risk this business model?A: While I firmly believe that diesel is unfairly blamed for many things, at the same time, we cannot discount the possibility that may become difficult to sell diesel vehicles because of restrictions coming in either through levy of taxes or through bans that we are seeing. Therefore, we have to have a petrol strategy, there is no doubt about it and we have strong line of petrol engine that we are working on. The S101 vehicle will be launched with a petrol vehicle from the word go, an engine that we have developed from the ground up and then we are right now working on larger petrol engines. We also have the synergy with Ssangyong, which has a very good product line-up and we will be able to use some of their engines directly on our vehicles as time goes on. So, we will have to have as strong a petrol line-up as we have in terms of a diesel line-up and therefore we will not be too concerned in terms of what might happen to our overall business if the swing happens completely from diesel to petrol. But I would still remain concerned that if that happens, we are killing a very good thing because of a specific thing that gets talked about, sometimes gets unduly highlighted.Q: So, considering all your SUVs and now diesel vehicles, so in five years time, what percentage do you think in your SUV portfolio will be diesel petrol?A: In five years time, any vehicle that we make will have a petrol option. How much of it is diesel, how much of it is petrol finally comes down to customer choice. We are not going to dictate that. That will be dictated by the customer. Q: About your two-wheeler business, it has been about a little over a year since you have taken over that business as well for M&M, what is M&M differentiator in an overcrowded market that has already entrenched players? How are you trying to create a niche for yourself in that market?A: If you look at the two products that we have, the brand new products that we have done, the Gusto scooter and the Centuro motorcycle, what we have tried to do is bring in some technology that does not exist even with the big size of the market that we have and very well entrenched powerful players in this field. In Gusto, for example, we have this height adjustable seat which is a simple feature and people with shorter heights are loving it because they do not feel they have a disadvantage of a short height. India does have enough short people, both men and women. And with the new marketing campaign that we have done, fairly aggressive marketing campaign, that is getting noticed now and we are getting very good enquiries on Gusto because of that one feature. In addition to that, when you come to Centuro, features of four-wheelers were not available in two-wheelers – the find-me lamp, the anti-theft, the immobiliser, in four wheelers, we have bought that into two-wheelers because of our knowledge and familiarity with four-wheelers, which the customers are liking because of this uniqueness and differentiator.So, in a crowded field like this, when somebody is coming out with a product that is giving you features that you do not otherwise get at the same price, it becomes a good value proposition.Having said that, it has taken us long to really make ourselves felt in this segment, and hopefully with the very strong campaign that we have done, we are beginning to see some traction happening and it is an industry where it is going to take some time for us to establish ourselves and we started a little bit late on our new product, the Centuro and Gusto. But now I think I feel that we have reached a point where we should start seeing some ramp up.Q: And where do we see products with Peugeot being launched in India?A: We are looking at the possibility of that. Again, it comes down to price positioning because European products are very expensive. In India, that price positioning will not help.Some of these products are very good and they will attract the Indian consumer provided we can bring it at a price point that Indian consumer will like to see. We are working on it.Q: Can we expect some product by the end of this financial year?A: By end of the financial year, very unlikely. But, in FY17, we should see something.

Q: What are your view on the current market?

A: Where we are today is perhaps not where I would have expected us to be a year ago. Yes, we have had growth in passenger vehicle, we have had growth in heavy commercial vehicle but the growth has not been uniform and not in all segments. The segment that is suffering very seriously is the small commercial vehicle where we have had almost three years of de-growth now.