‘There is no doubt about a rural recovery’
MUMBAI:BANKING on a rural recovery and higher farm income, Mahindra and Mahindra Ltd (M&M) will introduce three passenger vehicle products; enter the 10-16 tonne trucks segment to complete its commercial vehicle (CV) portfolio ranging from 0.5 tonne to 49 tonnes; turn Ebitda-positive for its trucks business; set up assembly facilities overseas—all of this in the current fiscal. Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of profitability.
“Frankly, the kind of growth that we saw in the fourth quarter surprised all of us,” M&M managing director Pawan Goenka said in an interview. The past two years had been very good in terms of farm incomes, helped by two rabi and two kharif harvests, and an increase in minimum support price, Goenka said. “That results in reasonably good affordability for the farmer,” he added. Edited excerpts:
You have had about 70% growth in your net profit. What has changed in the past 1 year?
All the uncertainty regarding GST and (the shift from) BS-III (to) BS-IV is behind us, so we can now plan very well for the coming years. The safety and emission norms are well-defined. It looks like the ministry has made it clear that March 31 is the last date for production and not sale, so we don’t expect the kind of thing that happened from BS-III to BS-IV. We have been looking to see how we can make BS-VI an advantage as we switch over, rather than something we are concerned about. When we go to BS-VI, it will not only be about emission but we will also be looking to add to the product so they have better value for the customer.
What about the trucks business and global expansion?
We are predicting a first Ebitda-positive year for the trucks business this year. We will also be entering the 10-tonne to 16-tonne segment. Therefore, our CV portfolio becomes complete from 0.5 tonne to 49 tonnes.
On the international side, we had taken a call two-tothree years ago to have more market presence than just exporting vehicles. Therefore, now we have a physical presence in four zones in Africa—cairo, Nairobi, Nigeria and Johannesburg. We also have offices in Sri Lanka, Bangladesh and Nepal. We are setting up CKD (completely knocked down) plants, which will allow us to have a more aggressive export growth.
Are you actually seeing a turnaround in rural sentiment?
It is definitely positive; there’s no doubt about it. Some of it is actually what has happened and the rest is anticipation of what is happening.
What is driving the 40% growth in tractors you saw in the March quarter? Are rural incomes really rising?
It’s a combination of things. One factor was subdued demand because of a slowdown in the tractor industry, another is the increased availability of funds for farmers.
If you were to look at where we were in FY14, we had sales of 630,000 units. In FY18, we had 700,000 units. That means 11% growth in four years. Don’t look at 40% growth in one quarter. Look at 11% growth in four years... that’s not very large. The industry was not doing well for two years and then it recovered during the next two. Therefore, if you were to look at the 8-10% average growth, we still have room for good growth. The last two years have been very good in terms of farm incomes.