M&M share price: Mahindra Group to continue on strong path of margin improvement: Anish Shah | Tech US News


“We have not given a time frame on this yet but we have said that in the medium term there will be a margin expansion of 300 bps and we have already achieved 240 bps, which is what we had planned. was, much faster than that,” says
Anish Shah, MD & CEO, Mahindra Group

Margins in the auto segment have remained stable. Was the higher cost inventory the reason that weighed on the margins and how do you expect the margins to end going forward?
If you look at our margin story, we actually went from 3.7% to 6.1% in auto. We talked about a 300 bps improvement in the medium term a year ago when it was 3.7%. We have already achieved 240 bps. We expected it to take a little longer but we got it done quickly. As we also think sequentially, we have seen some improvements there and we feel that improvements will continue going forward.

Today we have improved on many fronts. One is because of operating leverage, second is because of cost cuts and third is because of our new model launches, we have increased prices going forward and hence increased margins on models. All those factors are disappearing. We are on a very strong path of margin improvement and that will continue.

Out of the 300 bps margin expansion, around 240 bps has been achieved. Going forward, would that indicate that margins will be a little bit more range bound or do you have a target in mind?
We will achieve a balance of 60 bps and then give a new target.

When we talk about your margin, when will that balance achieve 60 bps?
We have not given a time frame on this yet but we have said 300 bps in the medium term and we have achieved 240 bps faster than planned.

We are talking at a time when prices of commodities like iron ore have started to rise. But there has been a major softening and if you look at crude oil as well, how will M&M consumers enjoy it?
We have not passed on all increases in commodity prices to consumers and this has impacted our margins in the past. So as commodity prices come down, it’s really going to start to take us back in many ways to where we were before from a margin standpoint and what we’re seeing at this stage.

What are the medium-term capacity expansion plans for XUV 700 and Scorpio, given the kind of strong response they are seeing in demand?
We have got specific details about this. For SUVs as a whole, we are increasing capacity significantly. We closed last fiscal year at 29,000; We will be at 39,000 at the end of this financial year and 49,000 at the end of the next financial year. If we go back a little bit earlier, we are close to doubling capacity to 70% during that time frame and especially in two years. The Thar has seen a significant increase in the likes of the XUV 700, Scorpio and Scorpio Classic. So, we are addressing all the long wait times that we have with this increase in capacity.

Given the premium positioning of the XUV 400 in size and features compared to what its peers are offering, what will be the pricing approach?
That we will have to wait and see. All I can say right now is that this is a fantastic car. It has features that are best in class and we will have to wait for the prices.

You have left the controlling stack in the PMTC. What will be the method of investment?
We will not invest further in PMTC and that is why we have done this. We feel that the partner who has come in, has the skills and talent to make it a very successful company and that’s why we have given the controlling stake and they will take it forward.

We really like the company, we like the Peugeot brand. We feel it has great potential for success and based on our focus on capital allocation, we felt bringing in a strong partner who could take the company forward was the right move for us and it really is. This was the beginning of the agreement. We will continue to partner with them. We will continue to leverage the strength of Mahindra which can help make Peugeot motorcycles successful but we will not invest in them further.

Given that SUV demand remains high, what about market share? How has it moved in the first half and has the higher waiting period for SUVs moderated?
Our market share has grown significantly over time. We have grown anywhere between 4.5% and 6.5% in market share, which is a huge jump from a revenue market share perspective. We’re just north of 19% and waiting time. Our bookings have been great so far. We continue to get 11,000 bookings a month for XUV 700, Scorpio N and Scorpio Classic, Thar, XUV 300 and due to this the waiting time is increasing. As we increase capacity, we hope to reduce wait times.

What is your view on inflation and rising interest rates? How will this affect tractor sales and passenger car sales?
For the auto segment, we are selling everything we can produce right now given the wait time. We don’t expect the drop in demand to really impact that even as we add capacity, given the demand for the vehicle is really a testament to the quality of the vehicles we have right now.

With the brand pool that consumers have, we don’t expect any slowdown on the auto side in terms of what we can deliver. There may be an overall slowdown in demand but given the waiting period that will not affect us.

On the farm side, it will depend on a number of factors influencing rural sentiment. In the first half, we believe that for the full fiscal year, we would expect the tractor industry to grow between 5% and 6.5% for the full year.

A lot has been said about CNG powered three wheelers in the recent past. How was the response?
Our share in LCVs has grown tremendously. We have always had a high market share for 2-3.5 tonnes and it has actually increased to 60% now, from around 50% earlier. We have seen an increase in market share of close to 10 points. Our market share for below 2 tonnes has also increased from 16 to 24%. We are actually seeing very good demand for our products. We have launched unique products in this space and they are being well received by the customers.


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