Mahindra & Mahindra seems to have suffered one of its dramatic market share falls in its utility vehicle (UV) segment in which it is also the industry leader. From 55 percent in 2011-12 M&M’s UV share slumped to 29 percent by close of last financial year.
The fall has come despite new model launches. TUV 300, KUV 100 and Nuvosport launched within a space of eight months starting September 2015 could not return the volumes expected from them. M&M collectively invested Rs 2,515 crore and over a 3-4 year period in developing the three models.
With competition set to hot up further questions were being raised at a recent analyst gathering on whether M&M should rather focus more on its low-investment, high returns tractor business than risk spreading itself thin on the cut-throat, capital-intensive UV business.
An analyst from one of the brokerages asked if M&M should rethink its business model, given how its investments in the UV business haven't translated into a higher market share even as pivotal changes in technology, emission and fuel economy pose a serious challenge.
“Can we collaborate and focus more on the farm equipment business which incidentally takes just one-fourth of the capital but returns more than half of the EBIT at the stand-alone level?,” asked the analyst, which was also the opening question of the evening.
Anand Mahindra, Chairman, Mahindra & Mahindra said, “In some form or the other I get this kind of question – should a business exist? Three years ago there was lot of negativism about tractors. I have gone through many cycles where at every given point in time there is somebody telling me to get out of some business. There was a time when tractors were not exactly seen as a high growth business where penetration levels had peaked and people said ‘you are gonna die’ because Sonalika will overtake you. But entrepreneurship is not about algorithms (because) that is what investors do. We build businesses. We create options for you guys to invest in….all I beseech you is to support entrepreneurs and support those who are not stubborn beyond a point.”
During the last 5-7 years Mahindra & Mahindra expanded its business into unfamiliar segments building yachts, earth movers, products for infants and children and even mini aircraft. Allied businesses such as heavy trucks and two-wheelers, which the company got into in the last 10 years, have been a let-down.
Mahindra went on to give examples of businesses which needed a pivot and the group responded positively. Mahindra CIE and Baby Oye were two such businesses which needed a hand and were sold to CIE and First Cry, respectively.
“There have been many assassins (of Mahindra) in the past but we still go on. Just give us a bit of value for resistance (we have shown). We understand very clearly that things are going to change. We are accustomed to people telling us about doom and gloom,” added Mahindra.
M&M’s UV market play began to struggle with the entry of Maruti Suzuki, Hyundai, Honda and Ford each of whom launched models in the same segment where M&M was the clear market leader. Powered by Brezza and Ertiga car market leader Maruti Suzuki closed last year with a share of nearly 26 percent compared to just 2 percent five years ago.
Pawan Goenka, Managing Director, Mahindra & Mahindra, said: “Yes indeed our UV market share has been dropping and we have talked about that in the past that as more and more players come in the leader will have lower market share than what we had when we were only 3-4 players. We do admit that market share is lower than what we would like to see. This year will have the biggest focus [on UV] for us”.
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