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Unable to expand capacity due to semiconductor crisis, says Rajesh Jejurikar, M&M

Production takes a 15-17% hit. The next wave of capacity increase will come 6-7 months later. That’s when M&M hopes to see the number of open bookings come down.

May 26, 2023 / 11:05 PM IST
Rajesh Jejurikar, ED, Auto & Farm Sectors, Mahindra & Mahindra Ltd.

Rajesh Jejurikar, ED, Auto & Farm Sectors, Mahindra & Mahindra Ltd.

Mahindra and Mahindra Ltd (M&M), which reported a 22 percent rise in net profit in the fourth quarter (Q4) of the financial year 2022-23 (FY23), said it is unable to ramp up output of its sports utility vehicles (SUVs) due to semiconductor chip shortage. India’s largest maker of utility vehicles, which had ramped up its total output to 39,000 per month, saw production slide by 15-17 percent in the last quarter of FY23.

Rajesh Jejurikar, Chief Executive of Mahindra’s auto and farm businesses, said in a post-earnings call that the company is facing some issues on the semiconductor front, which is impacting the ramp-up of Scorpio-N, Thar and XUV700.

"We are not clearly out of it, and my guess would be that about 15-17 percent of our output getting impacted. We had put out a capacity expansion plan, and that's been done. The gap that we're seeing right now between the actual volume (and the volume achieved) is not (due to a lack of) capacity but (because of) specific semiconductor shortages, which may be impacting the ability to get to 39,000 (units per month). There will be short-term issues around some semiconductors not being available, which may impact us."

M&M registered a 22% increase in its net profit of  Rs 1,549 crore for the quarter ended March, up from  Rs 1,268 crore in the base quarter. Revenue for the quarter came at Rs 22,571,4 crore, up 31 percent from Rs 17,237 crore in the same quarter of the previous fiscal.

In its bid to bring down the waiting periods for its bestselling models, M&M will be scaling up production capacity by 10,000 units per annum at its facilities within the next six months.

"The next wave of capacity increase will be six to seven months later, which is when we will go from 39,0000 to 49,000 (units per month), which is when the XUV700 and Scorpio (-N) will move from their current capacity of 6,000 to 10,000 units per month. Hopefully, over the next six months, we'll start seeing the number of open bookings come down," explained Jejurikar.

As per Jejurikar, the chip shortage situation is going to be a ‘wait-and-watch’ scenario over the next few quarters.

"(We have taken) action, which is allowing us to get to 33,000-34,000 units a month from 18,000 units a year and a half back. We now have products in our portfolio like the XUV700, which has more than 200 chips per unit. So, there is that much more vulnerability to disruption, which could come from multiple sources. We have taken multiple sets of actions, including starting to build an inventory of our own semiconductors and not just relying on the suppliers to build inventory," he added.

M&M has no immediate plans to make cells for its electric vehicle (EV) batteries on its own and is still evaluating production through its Volkswagen tie-up, Jejurikar said. It currently buys batteries from a Korean supplier.

Meanwhile, M&M has slightly raised its capex by Rs 825 crore for the three years ending FY24 as it anticipates buoyancy in the domestic SUV, farm equipment, and EV market segments. The company had earlier earmarked a capex of Rs 15,075 crore for the three years ending FY24.

Thanks to the sound demand outlook going forward, the company is raising the forecast for capex for the same period (FY22-24), Manoj Bhat, Group Chief Financial Officer at M&M, told reporters in a post-Q4 earnings announcement interaction. "Overall, at the net level, in the same period (FY22-24) the number which was Rs 15,075 crore is now Rs 15,900 crore."

Avishek Banerjee