Pawan Goenka named M&M MD

The company has hiked its guidance for tractor volume growth to 20% in the current financial year

Leading homegrown auto maker Mahindra & Mahindra (M&M) on Friday elevated its executive director, Pawan Goenka, to the position of managing director. Anand Mahindra, the existing chairman and managing director (CMD), will now be designated as the executive chairman. Goenka will continue to report to Mahindra.

The company said the General Motors in Detroit, USA for 14 years. He was instrumental in growing the R&D capability of Mahindra and also the launch of the Scorpio, the company’s popular SUV. He became president of the Automotive Sector in 2005, of AFS (Automotive and Farm Equipment Sectors) in 2010.

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The Compass: M&M: Strong tractor sales to improve margins in FY17

Mahindra & Mahindra reported better-than-expected operational performance on a standalone basis in the September quarter (Q2) driven by strong volume growth of 36 per cent in its farm equipment (tractor) segment as well as 11 per cent growth in the auto segment. Strong volumes along with price hikes across products led to revenue growth of 15.6 per cent yearon-year to ~10,172 crore.

While revenues were marginally below expectations of ~10,194 crore, M&M managed to report an operating profit growth of 28.3 per cent to ~1,468 crore and margins at 14.4 per cent, up 140 basis points, on a year-on-year basis. Bloomberg consensus estimate had pegged operating profit at ~1,295 crore. The higher profitability was on account of better product mix, economies of scale and ongoing cost reengineering efforts.

Its net profit was up 28.8 per cent year-on-year to ~1,253 crore (versus expectation of ~1,023 crore) aided by a strong operational show as well as other income which went up 41 per cent. The latter was largely from dividends with incremental increase coming due to Tech Mahindra. The tax outgo has also increased by half to ~486 crore due to the loss of fiscal incentives at various plants such as Haridwar. However, despite the good numbers, the stock fell 6 per cent, which can be partly attributed to worries over the potential impact from demonetisation and partly due to the fall in broader market on Friday. But with the management upping the tractors outlook (which was announced close to the fagend of market hours) expect the same to lift sentiment.

Given the strong Kharif season as well as good trends of the Rabi season, the company expects its rural portfolio which includes both the tractors as well as utility vehicles (UVs) such Bolero, Scorpio as well pick-ups to do well. It has increased its industry growth guidance for tractors from 15 per cent to 20 per cent. Given that M&M grew its tractor volumes at 36 per cent while the industry grew at 27.6 per cent, it has gained market share which is now pegged 42.6 per cent, its highest ever. The increase in the tractor guidance and its faster than industry growth could translate to more market share gains going ahead. The company expects passenger vehicle growth to be in the 12-15 per cent range for FY17.

With a higher proportion of more-profitable tractor sales expected in the second half of FY17, M&M’s margins could increase going ahead. Ebit margins in Q2FY17 at 17.85 per cent were 170 basis points higher year-on-year. In comparison, auto margins came in at 9.66 per cent, marginally ahead of the year ago number of 9.59 per cent. While M&M will continue to launch refreshes, it has planned a new product on the auto side in the second half of next year (FY18) which will be followed by another launch in FY19. The company expects the launches of the last year to keep the sales momentum going.