Mahindra & Mahindra (M&M), the market leader in the utility vehicle segment, is gearing up to launch two products from the SsangYong Motor Company (SYMC) stable by the end of this financial year. The recent change in the definition of completely knocked down (CKD) units has forced M&M to change its CKD plans for the SYMC range. SYMC Chairman, M&M President (automotive and farm equipment) and Society of Indian Automobile Manufacturers President, Pawan Goenka, in an interview with Swaraj Baggonkar, talks about the challenges ahead. Edited excerpts:
The government had recently changed the definition of CKD units and this would make imports costlier. Would you stick to your earlier plan of importing engines for the SYMC range from Korea?
We had said we would not consider an engine unit in India for SYMC, but that was before the final rule change. We would now review our strategies. The rule change may require us to revisit our programme. I do not know how it would happen.
Would SYMC engines be made in India?
After the change in the definition of CKD units, we are revisiting our plan and though we still intend to launch it by the end of this financial year, what exactly the content of the kit would be, has not yet been decided. We are still working on it.
Since M&M has its own research and development facilities, would you consider running SYMC products on your engines or vice versa?
These products are of a higher horse power (bhp) category. Both Rexton and Korando C use a 175 bhp engine. We don't have an engine of that category. If these products using M&M engines, which is 120 bhp, they would be underpowered. So, it is very unlikely that we would consider a Mahindra engine for an SYMC product. However, the option of using SYMC engines in our products is certainly available to us. If we feel some SsangYong products need engines with lower horse power, M&M engines are easily available.
According to a survey carried out by Dun & Bradstreet, 88 per cent of companies expect input prices to continue to rise in the current financial year. Do you agree?
There has not been a single year in the last four-five years when such a statement about the margins being under pressure was not made. There would, of course, be pressure on margins. There always is. It becomes progressively difficult every year because we are able to offset the increase in commodity prices partly because of internal efficiencies. However, after a certain point, there are diminishing returns. There is pressure on margins because the interest rates are also rising and the ability to pass on (the hike to customers) also becomes a little more difficult. In terms of margins, this year would be difficult for the auto industry.
The survey also said 54 per cent of the respondents expected selling prices to rise. Do you think passing on the rise would be difficult this year?
We have always said a part of the increase would be passed on, but we will not be able to pass on the entire increase. Compared to last year, it would be more difficult this year, not only in absorbing the rise in prices, but also in the ability to pass it on to the customer.
Would the growth in sales this year be as high as that seen last year?
I don't expect the growth in percentage terms to be as high as last year. We have been predicting growth of 12-15 per cent for the industry, keeping in mind what happened in the last quarter when growth had come down from 29 per cent to 20 per cent. We think the average for the year would be 15 per cent.
Has the continued rise in the prices of raw material upset your budget for the World sports utility vehicle which you intend to launch in a few months?
We are on track as far as our investment and material cost targets are concerned. We have met our cost targets. The pricing for the vehicle would depend on the market dynamics at the time of launch.
Has the high inflation resulted in a change in the company’s spending plans?
If a company feels because of the high rate of inflation, it would see a decline in its growth, or that its market share would be lower than what it had anticipated, it would cut on capital expenditure. For Mahindra and Mahindra, there is no rethink on cutting capital expenditure. We are spending about Rs 4,500-5,000 crore over a period of three years, including this year.