"We have to find a way to keep the economy running and at the same time protect lives. The numbers that we see today are far higher than what we have seen even in the first wave. But some action has to be taken to protect livelihoods as well."
How has the second wave impacted your companies, business, sentiment and planning?
At this point, the impact is not very significant. The government has been very prudent in terms of how it is handling the situation right now. In some sense, we are seeing lockdowns on everything outside economic activity. Some of it may cover some economic activity but at least factories — whether they are large or small — are open mostly and that is important. That way the workers are not impacted. It keeps the migrant workers in the factories as well and therefore that has been a very important step and the key difference between what we saw last year and this year. It remains to be seen how the situation turns out going forward. It is a grim situation. The vaccination will help a lot today. Ninety per cent of our workers who are eligible for vaccination have been vaccinated already. In the next couple of days we should be at 100% and we have been urging the government to open it up to all workers and all front line folks including people at the frontline of the economy, even those below the age of 45. If that happens, then we will be even safer and that at least will put the economy on a good track.
Are you in favour of a semi lockdown or any kind of a lockdown at a state level?
This is a very difficult question because it goes back to lives versus livelihood and we got to find a way to keep the economy running and at the same time protect lives. The numbers that we see today are far higher than what we have seen even in the first wave and therefore the government has a very difficult dilemma in hand and they have to take certain actions because protecting lives is important. If I were to look at it as concentric circles, the question is if the first concentric circle is keeping the workers safe and keeping our masks protected from an economic standpoint. If that is done, then that helps the masses and helps balance lives and livelihoods. Now at which concentric circle to draw the line, I would leave that to the experts to decide, but some action has to be taken to protect livelihoods.
Did you Know?
Stock score of Mahindra and Mahindra Ltd moved down by 1 in a week on a 10-point scale.
A CLSA research note talks about why the Mahindra & Mahindra stock has underperformed Nifty while it outperformed 2020 first half. One concern is that the tractor business has peaked out and last year's base effect would kick in and it will be difficult for the tractor industry to grow in double digit. Is the concern valid?
The tractor industry has always been cyclical to some extent. We have seen a very significant growth last year about 20% year over year. We do not expect that 20% growth again but at the same time, the base is much higher today. We would expect a single digit growth this year not a double digit growth but beyond tractor, there are many more growth levers.
Farm machinery globally is bigger than tractors. In India, it is a very small fraction of what is held as tractors. For us 5% of our tractor sales is what we sell as farm machinery and therefore we see a significant growth potential in that area as well. So I would say two things; a) the tractor base being higher, helps us significantly even if it is a single digit growth rate. b)If you add to that the potential of farm machinery and some of the other areas, we are seeing a fairly strong growth trajectory for us.
So you are still confident that the tractor industry will grow in double digits? I do not want to get this one wrong because it is a price sensitive question?
At this point from an industry standpoint, we do not expect a double digit growth rate. We would expect a single digit growth rate this year.
Capital allocation has been a differentiating factor for the last couple of quarters for Mahindra & Mahindra. What is next?
A tremendous set of actions were taken last year and we have told our analyst and investors that we had seen losses of Rs 3,000-3,500 crore from our international subsidiaries. That will be down to Rs 300 crore this year and get into positive territory soon after that. That is a significant turnaround and we are now therefore focussed on growth. We have got a number of different growth engines and we feel that that will really take us to a very different level.
How do you feel that larger auto companies like yourselves will actually take the EV trend head on to decide on the future?
We have been leaders in EV for many years and even today, if you were to include the last mile mobility, we sell more electric vehicles than anyone else in the country. We see this happening in two phases. Phase one is around the last mile mobility which is three-wheelers and smaller four-wheelers focussed on load as well as passengers. For that segment, the cost of ownership is better than conventional vehicles. There is no range anxiety because they have the range that they need and infrastructure is not really as relevant because these are smaller batteries. These can be taken out, swapped or charged anywhere. That makes it much easier and therefore we see that segment really taking off and over the next two years. We see a much faster adoption of electric three-wheelers and we have got some very good set of products there.
Second is four-wheelers. That is going to be a slightly longer term story. I would say three to five years is a fair horizon for it to start coming into its own because the cost of ownership is really not as good yet and we still have to do more work on being able to charge faster, on being able to provide the infrastructure that buyers will need. All these things will come together but that will take about three to five years.
And you have decided to invest Rs 3,000 crore over the next three years?
That is correct. We have committed to Rs 3,000 crore investment in EVs in the next three years and we will continue to evaluate what is required beyond that as we go through the first phase.
We understand that the company has to refresh the XUV500 and the Scorpio in the current year. How excited are you about the prospects in the SUV front?
We are very excited on that front right now. We have great success on the Thar. We are seeing a very high level of bookings. There is a long wait period because the bookings are far higher than what we had expected. The XUV300 is also doing extremely well and that has ramped up quite significantly. In addition to that the new launch that is expected of the 700 is an exciting one.The Scorpio refresh comes in after that. So, we have got four very strong products in play already and two that are upcoming and that should put us in a very good position.
Will the focus on capital allocation continue to be the key and the main focus? Will benefits of change be visible in FY23 onwards itself on your ROE?
The benefits will be visible from this year because we have taken a significant amount of losses out of our P&L and from a capital allocation standpoint this fiscal discipline will continue but the exits are behind us because we have done very detailed set of analysis and we have taken all the actions required and multiple exits across companies. So the exits are behind us but the discipline will continue to stay. We will see the benefit starting this year and continuing forward as well.
How are you viewing the entire commodity price uptick? How is it going to impact your businesses across the board?
We have seen a very significant rise and that is a function of demand globally as well as some supply chain challenges. We see some of that easing out once supply chain challenges go away but it is a concern right now. Margins will be impacted across the industry. For us we are better positioned because we historically had far higher margins on the tractor side and in auto we have been in the higher side as well. From that perspective, we are better positioned than many of the other players but we see that as an impact on the industry.
At what point do you think the ability of auto companies to keep on passing on the price hike would be limited? Right now steel companies are increasing prices, auto companies are passing it on.
At this stage, the increase in commodity prices has been so significant that frankly I will be very surprised if that increase continues. So we shall have to wait and see what happens but you are right. There is a limit ability to pass pricing on to consumers and one can debate whether we have reached that already and whether there is still some room.
The bigger point is around where commodity prices will go and as we have seen the very dramatic increase so far, it is difficult to believe that it will continue.
What should we expect at the P&L level? Commodity prices go higher, top line automatically goes higher, price hikes take place but at the bottom line margins, will there be a contraction?
We have seen commodity prices going up through all of last year. It started a little more than 12 months ago. From a margin standpoint. we managed to do better than expected as well because of various other actions that we have done to take our cost in the system without impacting our employees. That has also helped a lot. Those cost savings will continue this year and beyond and that has been one way for us to mitigate the impact of higher commodity prices.
The most important differentiating factor is the capital allocation. Which are the other group companies where you think the capital allocation changes would be as significant as what you have done let us say with the SsangYong and our other international businesses?
So on that front, even beyond international subsidiaries we looked at all loss-making entities in India and have taken action there as well. So that is behind us. We see a huge potential for growth.
If you were to look at our core businesses; auto, farm, TechMahindra and Mahindra Finance — all four are very well positioned in their industries. And each of them has a set of things that really drive growth for them that we are starting to see play out. Beyond that, the logistics, holidays and real estate companies have got potential to grow very significantly from where they are today. They are all listed entities and have the potential to be a billion dollar market capital in the next five years or so. And then we have got our growth champs. Growth champs are 10 companies that have cumulative revenue of Rs 10,000 crore last year and many of them are profitable and can be scaled up significantly. We will see some billion dollar market entities coming out of the growth champs as well. So that gives us multiple engines to play with from a growth perspective.
We are on a very good track and we are really putting all our efforts behind driving growth across these companies to have a very healthy growth rate for M&M overall.
Mahindra & Mahindra Financials or
are great companies, built to last. But the margins which Mahindra & Mahindra Financial or Tech Mahindra have reported for the last couple of quarters, are not the best in the industry, not even second or third. Are there any specific plans for these two companies?
Both play in segments that are slightly different from their industries. Mahindra Finance is the largest player in rural India. It has a great set of customers that are not salaried and therefore it is very different to compare with other financial companies that go after a higher percentage of salaried customers.
In the past, whenever there are issues from an economy standpoint, Mahindra Finance has had higher NPAs and the credit losses have never been very high. But the NPAs have come back to normal and Mahindra Finance comes back strong after every such occurrence and that is what we would expect this round as well.
Tech Mahindra has been more focussed on telecom over many years and it has been transforming itself over the last couple of years and therefore has shown much better performance than many of its peers. So it is on a right trajectory right now and we do expect that trajectory to continue.
If we take slightly more bird's eye perspective, is the strategy just taking forward some of what was already in play or is there a fresh perspective, a new angle that you are exploring?
We have taken a very different view last year from a capital allocation standpoint and the board has been very supportive. I see myself as fortunate to start this role with a number of difficult actions already behind us. This year we will focus on growth. We will look at different perspectives and we will look at creating platforms in some cases. Our used car business is very well suited for a platform. Leveraging digital and technology in a much bigger way is going to be our focus. Those are the things you can see as we drive this growth.
In terms of growth momentum that you see from an industry point of view as well given the kind of headwinds that we are facing not just from a company perspective but from an industry perspective, give us a scenario over the next two, three years. Do you see a longer term impact of what we have actually been through?
I am very optimistic about it, based on what we have seen in the last three or four months and even through last year. For example, rural India has been a very strong positive story and we see that continuing. If you were to look at IT services, that industry has been doing well on the back of demand for a number of reasons and we see that continuing.
Holidays have done well even in a tough year and in the last three to four months — before this second wave — we saw all our customers coming back. Therefore I feel that as we get out of the second wave, we should be much better positioned. It is going to be a lot better than what most would expect.
You may be applying for a banking licence and you are confident in meeting all standards. Is the board room ready?
The basic message is that we remain interested but it would depend on what the RBI guidelines and regulations are. At this point in time, we are waiting for them. My basic comment was that from a governance standpoint we have a very high standard. We will meet any guidelines around governance and there are other considerations as well. We have to see what those considerations are and when the guidelines come out. At that point, we will be able to react to that in terms of whether we can meet it or not.
Do you think that having a presence of a focussed bank is now the extension to the Mahindra Group instead of fixing the bill and making a complete bouquet?
It is in a sense a logical next step but it is not something that is essential in terms of making the bouquet whole. If the regulations allow us, that is something we would stay interested in but we have a very good set of businesses today that are very well poised for growth. I am very happy with the bouquet that we have right now.
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Mahindra Group expects a single digit growth rate in tractors this year: Anish Shah have 3228 words, post on economictimes.indiatimes.com at April 12, 2021. This is cached page on Talk Vietnam. If you want remove this page, please contact us.