While the ongoing Red Sea crisis continues to impinge on the movements of various products and parts due to the surge in ocean freight costs, Mahindra and Mahindra (M&M) has affirmed that it doesn't see any “significant impact” on its business. A senior official of the homegrown automaker, while acknowledging that there is some impact in terms of “freight rates" and “increased delivery time," maintained that the company has managed to de-risk itself from any supply chain disruptions.
“On the Red Sea (impact on our business), I am breaking it up into three parts. One is that there is some cost increase because of what's happening right now. (But) we are covered by some long-term contracts. But either way, the cost increase is not very material," Rajesh Jejurikar, Executive Director & CEO (Auto and Farm Sector), M&M, told reporters in a post-earnings conference.
Due to the disruptions caused by attacks by Yemen-based Houthi rebels on commercial ships in the Red Sea, vessels have to take a detour for exports and imports. The Red Sea imbroglio has affected shipments to markets in Latin America, Europe, and the United States.
“The second (impact) is (on the) time to get the products to export markets. Again, it is not a very significant impact, but it has impacted us a little bit, as we've got Oja (tractors) in the launch phase right now in the US, and we have seen a two-to-four-week delay in our ability to get the product out there. So that's a short-term impact."
He went on to add, “I think we are, kind of, over that, and the product is almost there, ready to go. But otherwise, there's no significant impact except timing,” added Jejurikar.
He went on to add, “On incoming raw materials, we have proactively built up inventory based on learnings from the past. So we have, by and large, de-risked on that front. We also have a few other arrangements with service lines to make sure we get priority on incoming materials. So overall, no significant impact was on us.”
M&M, while announcing its financial results for the third quarter ending December 31, 2023, said that it achieved its highest-ever Q3 auto volumes, with sales totalling 2,11,443 units, resulting in a 20 percent growth compared to the same period last year.
Jejurikar, while outlining the sales performance of the company, said that it maintained its leadership positions in various categories, including sports utility vehicles (SUVs), Light Commercial Vehicles (LCVs), and Electric Three-Wheelers (E3Ws).
In the SUV space, M&M has managed to increase its market share to 21 percent, from 20.6 percent reported in the same period last quarter.
No adverse impact due to farmer’s protest
M&M, which also has a significant farm equipment presence, asserted that the ongoing farmers' protest demanding guaranteed Minimum Support Prices (MSP), among others, will not lead to any deceleration of its tractor sales. The company is anticipating a 5 percent decline in volumes in the overall tractor industry due to the previous year's high base, weather vagaries, a weaker monsoon, and lower reservoir levels.
"I don't see the farmer protest having any significant impact on the (tractor) industry's growth,” stated Jejurikar.
"This year, we expect the tractor industry to be more negative than we had thought, based on what we have seen in the last few months," said Jejurikar. "So, we would expect the tractor industry to be at around (-) 5 percent for the full fiscal," he said.
For the March quarter, it would further dip to around (-) 10 percent. The industry has seen real stress in the Maharashtra, Andhra Pradesh, Telangana, and Karnataka markets, he added.
"A couple of critical factors are going to drive rural sentiment upwards. One is the news of a good monsoon (which could lift sentiments), and two (is that) the reservoir levels will hopefully come back to an average or a little bit better than that," as stated by Jejurikar .
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