M&M's Pawan Goenka says not concerned about the market share in tractor industry

A: Let me say that the primary set back to the auto industry and also to some extent, tractor industry, was the festive season.

During Dussehra and Diwali, the retail sales were nowhere near what was expected by the industry.

As a result of that, lot of inventory was built up with the dealers since the billing. The wholesale was done in anticipation of retail and in the month of November and December, most industries and companies have used for cleaning up.

Therefore, don’t let the billing numbers or the wholesale numbers be indicator of what is happening in the industry in a last two months. My sense is that end of December, everyone has come down to the inventory level of where they want to be and therefore, January, February and March should see true reflection of where the demand is.

I would not say that there has been some softening of sentiment and demand, but I think it has all led simply by what happened in October and September since everything being wrong at that time. The interest rates, the exchange rate, the oil prices, commodity prices and I think that is what we are seeing in November and December also. Therefore, I would expect some turnaround in January, February and March. Though, I must admit that last year January, February and March was a very high base and therefore to get a significant increase from last year will be reasonably difficult thing to do.

A: In the auto industry especially in December, there is always very high level of incentives, schemes that are given to clean out last year’s inventory and I won’t know the number that others have right now.  I will know that in few days, but our retail numbers were roughly what we had planned for and we are ending 2018, the inventory level, where we want to be and therefore in some sense, we are going into January, February, March with a fresh start.

Especially for Mahindra, there are new product launches that are also working for us. We had the Marazzo launch in September, Alturas launch in November and would launch XUV 300 in coming February and these three launches should add to the overall volume growth that we would see in this quarter.

A:

These days launches have become pretty expensive and companies spend significant amount of marketing budget during that period and therefore, in September when we launched Marazzo, we had a significant launch expense. In February, when we will launched XUV 300, we will have significant launch expense and that does have a one quarter impact on margin, but it's spread over 4-6 quarters and it's not a very significant amount of money.

The company look forward to what is going to happen overall to the economy and the impact it has on the consumer demand. What has also impacted the demand a little bit in the last couple of quarters, especially in the heavy commercial vehicle (HCV) segment, which we haven’t talked about yet as axle loading norm has changed, which obviously increased the capacity of goods carrying for the fleet operators and impacted the demand. That should also sort of tide-over the next quarter or two quarters and the demand growth should get back to normal.

A:

The total industry size not being very large, about half a million for the year. Therefore, don’t look at month to month, we have to look at cumulative for the year. And cumulative for the year, I don’t think anybody would have been more than plus and minus one percent market share. We are marginally down, maybe half a percentage point or something. Again, that depends a lot on inventory build-up by various manufactures and difference between billing and retail. I am not aware of other people on where they are, but I know that our inventory levels at the end of December is quite comfortable and therefore, our billing – that is wholesale – does reflect truly what we are doing in terms of deliveries.

Therefore, I am not at all concerned about market share. In this industry as I have always said nobody gains substantially in a given year, nobody loses substantially in a given year and little bit of up and down keeps happening.

A: Clearly, I cannot speculate on the margins that we will see in Q3 or Q4. All I can say is that the volumes are reasonably okay. About 10-11 percent growth for us has driven most by the commercial vehicle, not the passenger vehicle which is flat. We have new product launches and it does have expenses. But then, the other things that we try and do to make up or offset those expenses, I will not be able to give you any sort of indication of whether margins in Q3 and Q4 will match up to last year or will be higher or lower.

A: Obviously, I cannot say why Escorts has done well.

A: I don’t think so. The industry for this month as we are aware of, as of now, has grown about 3-4 percent and Escorts has announced a fairly large billing increase. Mahindra and Mahindra is approximately same level as last year in terms of billing, but again, as I said earlier that in this industry few hundred tractors here and there can make a huge difference in terms of percentage change and the deliveries, which unfortunately are not something that are publicly announced are the true indication of what is happening on sales numbers.

All I can say is that our deliveries – we keep it in line with our billing or other way round, is in line with deliveries. I do not know, what the industry status is in terms of that therefore, very difficult to read anything into a month’s number in terms of billing or retail.

As far as M&M is concerned, our market share is at about 42 percent, which is just marginally lower than what it was last year YTD November and we do expect that January, February and March, we will see a market share equal to or better than January, February and March of last year and therefore, we should end the year roughly at about where we started in terms of market share.