Passenger vehicle sales to outdo Siam's forecast, says M&M MD Pawan Goenka

Amid slowing sales and poor buying sentiment, Pawan Goenka, managing director, Mahindra & Mahindra (M&M), is hopeful that passenger vehicle sales in India in the ongoing financial year may do better than what the auto industry body has projected. 


Goenka expects the newly elected government to take aggressive steps to boost consumption and expedite reforms after a strong mandate the ruling Bharatiya Janata Party has got in the recently concluded Lok Sabha elections.


“The industry will do better than the Society of Indian Automobile Manufacturers’ (Siam) forecast,” he said at the company’s annual press meet.  Uncertainty ahead of the elections, liquidity issues, and a prediction of below-normal monsoon, among other factors, had prompted the industry body to forecast a moderate 3-5 per cent growth for passenger vehicle sales in 2019-20.

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“The government will have to turn the curve on demand,” said Goenka, pointing out that growth in India’s passenger vehicle market has been tapering off over the past five years due to frequent pace of regulatory changes.  


Rajan Wadhera, president, Siam, and president-automotive sector at M&M, said the industry lobby has made a representation to the government to cut the goods and services tax rate on passenger vehicles to 18 per cent, from the current 28 per cent.  


Passenger vehicle sales in India advanced 3.27 per cent in 2018-19, the slowest in four years. As a run-up to the implementation of the Bharat Stage (BS)-VI emission norms, the biggest unknown is the extent to which pre-buying will take place and inventory planning.  Automakers cannot produce or sell BS-IV vehicles after March 31, 2020. Government policies, availability and affordability of finance, monsoons, trade barriers, and the transition to BS-VI will be some of the critical factors that will impact the auto market in 2020, said Goenka. 


Meanwhile, like most the other manufacturers such as Maruti Suzuki India and Tata Motors, M&M too will discontinue its 1.2-litre turbo diesel engine with the transition to BS-VI. Small-capacity diesel engine ‘will be too expensive’ to meet the new norms and expected to disappear from the market, said Goenka.  

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M&M on Wednesday reported a 16-per cent decline in its net profit for the fourth quarter ended March 31 at Rs 969 crore. Revenue for the period rose 4.7 per cent to Rs 13,808 crore over a year ago. On the back of weak tractor volumes, margins declined to 13.5 per cent, from 15.1 a year ago. The company has recommended a dividend of Rs 8.5 (170 per cent) per ordinary (equity) share of the face value of Rs 5 each.


During the quarter, M&M’s passenger vehicle sales increased 7 per cent to 77,607 units, over the corresponding period in the previous year, but tractor sales dropped 15 per cent at 56,903 units in the same period. 


For the full year, net profit rose to 10.1 per cent to Rs 4,796.04 crore, compared with Rs 4,356.01 crore a year ago. Revenue from operations during the previous financial year rose to Rs 53,614 crore, against Rs 49,444.99 crore last year.


Helped by three new launches — the Marazzo, Alturas and the XUV3OO — M&M managed to recoup the market share it had lost in the segment to 29 per cent, from 25 per in the March quarter, and regain its leadership position. It has prompted the company to go ahead with the second phase of expansion at   its Chakan facility. The tractor and utility vehicle (UV) market leader plans to invest Rs 18,000 crore over the next three years.   


In a note after the earnings, Mitul Shah, vice-president research at Reliance Securities, wrote: “We expect M&M to face some margin pressure on account of turbulence in the rural economy, competitive environment in the domestic UV space, and slowdown in the tractor industry.”  He, however, added the new XUV300 would drive the company’s overall volumes and profitability to offset the slowdown in other segments.