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Q&A with Dr Pawan Goenka

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M&M, the market leader in sports utility vehicles, is planning to introduce nearly half-a-dozen new models this financial year to beat the slowdown in demand. The company's automotive sector president Pawan Goenka, tells Swaraj S Baggonkar negative sentiments are killing demand more than other factors such as interest rates, fuel price rise and inflation. Edited excerpts:

 

 

What was the pressure of raw material costs during the quarter?

Raw material pressure was not as bad as we thought. During the last quarter, raw material increase had been marginal and so that has to a large extent off-set the effect of the interest rate. So, the selling price increase has been less than what it would have been. We were lucky the raw material prices were under control. We are expecting the prices to remain the same for the rest of the year.

Are you facing any capacity constraint?

The capacity constraints are in two areas, on overall constraint on the engines for the pickup Bolero and Xylo D series. Hence, that means we are not able to pick up demand for the pick-up range. By the end of this quarter, we should have enhanced the capacity completely to meet the demand. We had not planned for this kind of growth. The other constraint is on the tractor side for the Arjun series.

What impact are you witnessing of the broader economic scenario on your sales?

The overall growth is driven by sentiments. There is an effect of interest rate undoubtedly. We hear about petrol and diesel prices going up, about slowdown and the global meltdown, all these play on the customer's mind. How long will this continue we all have to see.

In the event of the slowdown, are you changing your capex plan?

No, we haven't made any changes on expenditure plan. One part of the capex is on product development for both auto and tractor and second is on production capacity. As far as product development is concerned, there is no change. For capacity, as of now, we have not deferred our plans but there are concerns on the industry growth projection that we would see in the next three-four years. We have , hence, lowered our projections so there might be some delay in capacity addition, but that will be to the order of three-four months only. The phase II expansion will depend on what the Maharashtra government brings up.

What is the absolute investment you are making as capex?

Our capex plan for three year — 2012, 2013 and 2014 — is Rs 5,000 crore and our investment plan for the same period is Rs 2,000 crore. So, there is Rs 7,000 crore capex and investment which has not changed. This is without counting phase II expansion of Chakan (Pune).

Any new launches?

There are several launches planned. What we had said earlier is that over the next 15 months we will have a dozen vehicle launches, Of which, we already have launched seven. We will launch four-five more by March. What we have talked about includes the new SUV, Verito facelift and under-4 meter Verito, the NXR electric vehicle, the Ssangyong product.

What impact will the global slowdown in demand have on Ssangyong?

We are expecting a 120,000 units volume growth this year. Between January and June, we sold 55,000 units and we are sure we would hit the number 65,000 in the remaining months. Whether the current sentiments will have an impact on export of Ssangyong, will be difficult to say. We are in the investing mode and developing brand. We are in the process of finalising between M&M and Ssangyong the future product line and this will hold key to turning around Ssangyong and key to the synergy benefits to the alliance.