Auto major Mahindra & Mahindra (M&M) is fast emerging a key beneficiary of the improved monsoon outlook among auto companies. Its share in the domestic tractor market rose to the highest level in several years during the April-June quarter, after it clocked a 21 per cent growth in sales. Sales of its utility vehicles (UVs) too grew double digits at 13 per cent.
“The best news for our business this year is the good monsoon, which has brought widespread rainfall. Given the way things are, we believe growth to continue at this pace,” Pawan Goenka, executive director at M&M, said at a media interaction in the Capital.
Goenka said the company closed the April-June quarter with a 43.8 per cent share in domestic tractor market, the highest in almost a decade. At 21 per cent, M&M’s growth is higher than the 15 per cent growth registered by the industry during the quarter.
“The impact of good monsoon first flows into tractors, followed by two-wheelers and passenger vehicles. The change in sentiment impacts business,” said Goenka. The improved sentiment was also driving the company’s stock price. On the BSE, M&M’s stock price hit a 52-week high of Rs 1,479 on Tuesday. The stock of the country’s third most valued auto company (after Tata Motors and Maruti Suzuki) had appreciated 20 per cent in the past three months.
The company’s tractor sales had declined for two consecutive years (FY15 and FY16), as the country faced deficit rainfall during both years. In the year ended March 31, tractor sales declined nine per cent to 213,591 units. Goenka said while Q1 had brought 21 per cent growth, sales were usually better in Q2 and Q3.
A good rainfall and the consequent improvement in rural sentiments and purchasing power in rural economy also augur well for the company’s UV sales. Half the company’s UV sales come from rural and semi-urban areas.
Spoke in two-wheeler business wheel model
M&M will decide on the way forward for its fledgling two-wheeler business. The company does not even command a one per cent share. With a domestic volume of just 144,355 units in FY16, it made for an insignificant share in the 16-million unit two-wheeler market. The company was forced to recently lay off hundreds of employees in the two-wheeler business.
“It is one vertical, which has not met expectations last year. We are currently in the process of deciding the way forward for our two-wheeler business,” Goenka said. Without going into detail, he said a formal announcement would be made in the next couple of months.
Explaining the rationale behind the layoffs, he said: “Volumes were not as we planned. We have right sized... We have given VRS to 250 people.” When asked if Mahindra would exit the two-wheeler business, which it had entered into in 2008 after acquiring assets of the then Kinetic Motors, he succinctly said, “highly unlikely.”