Home-grown auto major, Mahindra & Mahindra (M&M) is targeting to sell around 8,000-9,000 units of newly-launched Marazzo and upcoming model S 201 together per month, said Pawan Goenka, managing director of the company.
"We are not really focusing on whether we sell more Marazzo or more S 201 because we had kept our capacity flexible," Goenka said.
The company on Monday launched its new minivan Marazzo, at a starting price of Rs 9.99 lakh.
Goenka said the company is expecting a bumper festive season for tractor sales and confirmed that the joint venture with Ford Motor Company is a pure speculation.
According to Goenka, tractor margin is unlikely to be impacted by higher crude oil prices and rupee depreciation, “Margin growth for tractors depend on input costs and volume growth. Input costs have gone up and are likely to go up but with volumes to going up, there will be an opportunity to spread fixed costs on larger volumes."
Let me start first with what we have seen in terms of the tractor numbers which is causing a slight bit of concern because for the month of August we have seen tractor growth slow down to about single digits, 7 percent year-on-year against 20 percent growth that we saw for the month of July. Is this a one-off on account of the floods that we saw in the Northeast, in Himachal Pradesh, in Kerala which accounts for about 10-15 percent of your volume or is there something that has changed in the market?
I don’t think there is a cause for worry. In fact, we had said that even in the beginning of this quarter that August and September would be slower than last year and the reason is last year the festive season was almost a month earlier than it is this year.
Tractor sales will be high after Navratri and before Diwali. This is the reason that July and August were slow and in fact, September will also have fewer numbers than last year and that is very much in line with what we think.
All of us are expecting a bumper festive season for the tractor sales. But this quarter which is different will be slow compared to last year's quarter.
I would admit that the floods have had some temporary blip in certain areas. But as an overall industry, I don’t think it is going to make a huge difference.
Whether there is any possibility, any headroom, any levers that you can exercise to eke out better margins on the tractor business which you have been able to successfully do?
As I had said before, margin growth will depend on input cost and the volume growth. The input costs are going up. The commodity prices have gone up quite significantly in the first six months and they will continue to go up in the coming months also.
But at the same time with the volumes going up, we do have an opportunity for spreading a fixed cost on a larger volume and therefore, I think most of us will certainly try and maintain our margins and even try and increase little bit, but it is very difficult to say till after the festive season is over.
You are saying that commodity costs are imposing some pressure on margins. Do you anticipate that if we see this current run rate as far as crude prices goin up and also the rupee depreciation, this is going to start to eat into margins?
Not much for tractors, because tractor does not have a very import content. Overall for the automotive sector, there is also a balancing factor. The import cost is going up because of the exchange rate and it does get compensated with the export revenue again because of the exchange rate. So there is a natural hedge that most of us have against the foreign exchange.
The foreign exchange by itself should not make much of a difference in terms of overall margins because of a natural hedge. If the foreign exchange artificially increases commodity prices of what we buy in India then, of course, it makes a difference because that needs spread over the full volume.
Now most of us had been able to pass on till now about half of commodity price increase in the selling price and about half is sort of balanced because of the growing volume that we have even on the automotive side. Therefore, the margins have been reasonably well managed.
Do you feel that you might be compelled to pass on more? You said that you have been able to pass on half of the commodity cost on to consumers. Do you feel you will need to take price hikes now?
This is a dynamic situation and I don’t think it is a situation of the cost goes up so the price goes up. It is a situation of what the market will bear, what the competition is doing and many other factors.
Therefore, sometimes we are not able to pass on the full commodity price increase, sometimes we may even pass on and compensate for past deficit that we have on the commodity price increase.
Again it is very difficult to say exactly what will happen. But clearly, we try very hard to maintain our margin and look at all avenues that we have to ensure that we do better.
So no immediate price hike is what I should then anticipate?
I cannot really say that because the price hike again really depends on a lot of different things and the last one that we had taken was on July 1. Normally, we will wait about three months before increasing the price, but again this is not a very fix schedule. It can happen little sooner or little later, so I cannot deny any price increase.
So you are keeping the window open for the possibility of a price increase as well. Let me then talk to about your new launch the MPV Marazzo? If I were to ask you for the kind of run rate that you expect with the Marazzo I am taking a look at the Maruti Suzuki Ertiga numbers, the Innova numbers which do about 5,000-6,500 units per month what is the kind of expected run rate that you are for the Marazzo?
Marazzo, first of all, the launch has gone very well. The initial reaction is very good. We are preparing overall capacity for Marazzo and S 201 that will be launched in a few months to be about 8,000-9,000 vehicles per month together.
We are not really focusing on whether we sell more Marazzo or more S 201 because we had kept our capacity flexible. So let us assuming half and a half or thereabouts, 60/40, 50/50 of 8,000-9,000.
What is the strategy going to be as far as the Marazzo is concerned? Are you looking at pushing this more towards fleet users, personal consumption?
We have tried very hard to ensure that this is not seen just as a fleet vehicle. Of course, it is a fleet vehicle also, it is designed to carry people. But we are also focusing on families, large families to have a vehicle that is very comfortable, spacious, premium, internal luxury, or premium internals.
We are also focusing on families enjoying outside life, or weekend trips and so on. I don’t think that our volume will come only from fleet operations. Fleet operations will be one of that three verticals that we expect the volume from.
Let me talk to you about what is going on as far as the joint venture (JV) with Ford is concerned. You’re re-visiting the past as you look into the future what is the game plan now as far as the Ford-M&M JV is concerned? Have you worked out the details and why people ask the question again are you interested in inking is this joint venture with Ford, where the business perhaps this year has seen a decent performance but otherwise it has seen a 1 percent growth in sales in India and the domestic operations into 2017 it continues to be a loss-making business what is Ford bringing into the table for you?
Ford JV is a speculation and I don’t know where it started from.
So, is it happening or not happening?
What we have talked about is an alliance between Ford and Mahindra and that alliance is very much in place. Everything that we are doing right now we have announced that in the media. There is nothing new to talk about.
We have an alliance in product development, we have an alliance on sourcing, we have an alliance on international operations where Ford might be able to help Mahindra little more.
We have an alliance for even helping Ford in terms of their network expansion in India. So, those are kind of thing that we are doing and there is nothing further to talk about beyond that.
Q: There is no JV that you are signing with Ford, you are categorically ruling that out?
All the alliances that we have talked about are basically cooperation between the two companies, it is not a JV.
What else is being speculated or reported on and the assumption is that since Ford’s global strategy is now moving towards SUVs as oppose to Sedan’s that you will collaborate on mid-sized and compact SUVs as well as perhaps electric vehicles, is that the plan?
That we have announced, we have already announced that Ford is likely to use one of the Mahindra platform that we are currently developing. Mahindra could be using a Ford platform for electric vehicles that Ford already has. They have Internal Combustion (IC) engine platform that we may convert to an electric vehicle, so these have been announced.
All of these are right now MoUs meaning intentions or intent, we have not yet signed a final agreement to do it and that depend on many other factors. It depends on whether the business is commercially viable, whether there is capacity available and all of those so that work is going on.
So, five area that we have already announced that we are collaborating on one is mid-sized SUV platform, one is electric vehicle using Ford’s platform, one is Ford using Mahindra’s engines, one is on mobility and one is on connectivity.
You said that this is still at the level of a MoU. When do you hope to take this to closure? When do you hope to ink this final agreement? You also said that there are several other determining factors that you are currently weighing on specially when it comes to commercial viability when do you hope to close this?
Two of these five are very close to getting closed, so within the next month or so we should be able to announce two of these fives.
First Published: IST