Mahindra and Mahindra has had a mixed April-June. While the tractor segment showcased better growth than the industry growth in Q1, the two-wheeler segment failed to meet expectations. In an interview to Bloomberg TV India , Rajesh Jejurikar, Chief Executive and President - Farm Equipment and Two-wheeler Business, M&M, says the company has now gained market share in tractor segment as better monsoon and revival of rural demand has pushed up sales. The two-wheeler business should be more specialised and more focused, he said.
M&M’s performance has been mixed, although the tractor segment is witnessing robust growth. Why is it so?
The first quarter (April-June) is just over and we have seen very good demand. The tractor industry grew 15 per cent in Q1. We did much better than the industry with sales growing almost 21 per cent and recording a market share of 43.8 per cent, which is almost the highest ever for farm equipment business. Certainly, the mood all around is looking good.
Monsoons tend to improve the sentiment. And this comes after two bad years when we saw low sentiment in consumer buying. You do see pent-up demand, which starts getting materialised into buying behaviour even though the cash flows of farmers will take a little bit of time to improve.
Do you really think that the worst is over?
There are multiple drivers of rural demand, and the monsoon is clearly just one. Not all the problems that we had over the last two years were caused by bad monsoon. Firstly, it was not just the quantum of monsoon but also the timing of the monsoon, and that makes a huge difference. We had off-seasonal rains which damaged crops and people lost money in the process.
Two other things have been impacting rural demand. One was the poor employment guarantee scheme where the allocation went down. That got corrected in the Budget this time.
So that is expected to improve the cash flows. That is particularly important in a year when monsoons are not good because you are creating an alternate cash flow to the farmers. When monsoons are not good and the rural employment guarantee money was not available, there is a squeeze from both sides.
The other determining factor is the commodity prices of farm produce, which has been suppressed in the last two years for two reasons. One is the global commodity prices of agri products all over have been low, which impacted Indian prices too.
The minimum support prices (MSPs) have not gone up as much. I believe the global agri commodity prices are beginning to move up in most parts of the world. With elections around the corner (in States such as Uttar Pradesh and Punjab), we expect the MSPs in India to move up. The other very important thing and I think that’s really what the long-term prospect is about, is a high level of commitment from the government to fundamentally improve agriculture in the country.
A lot of initiatives are being planned on doubling farmers’ income over the next five years. There is a lot of focus on soil testing. And most important is the focus on fundamentally improving the infrastructure, which is irrigation. And as the irrigated area goes up, the dependence on monsoon will come down. In one-two years, that’s what will improve the outlook.
The other segment of your business, two-wheelers, is also very much dependent on rural consumption. How has it performed?
We’ve not had the kind of success that we would have hoped for in the two-wheeler business. There is no running away from that. We believe that, as management and leadership, if we acknowledge and accept what’s not going well, then we will end up making the right decision.
What did not work for your two-wheeler segment?
Clearly, in the hindsight, it is not very easy to succeed in the mass market segment. There are many players who are ahead of us; they have been there for many years and are very well established. So it is not very easy to penetrate in the mass market. Our two-wheeler business should be more specialised and more focused on areas where we can win.