The Supreme Court’s diesel ban case has created a lot of uncertainty in the auto industry. Many companies, especially MNCs, are having second thoughts in enhancing their investment in India. Speaking to BTVI, Mahindra & Mahindra’s Executive Director Pawan Goenka says the relief given by the Supreme Court on diesel vehicles is a temporary one and that the company hopes to manage the 1 per cent addition cess on diesel cars without much pain.
In the first quarter, M&M, which grew its volumes by 13 per cent growth, hopes to sustain it if not accelerate it in the coming quarters, he said.
Is the Supreme Court verdict on lifting the ban on registry of diesel vehicles above 2000 cc a relief to the auto industry?
Of course, it is a relief, although a temporary relief. Having said that, I think the Chief Justice on the day of the final hearing seems to be inclined to think that having any kind of significant cess on diesel vehicles appears to be wrong. This is just my reading. I may be wrong about it. Therefore, the final verdict may not be much different from what we have in the interim, that’s my hope. So, I hope the interim becomes the final. And then, the issue is behind us. It is really affecting the industry in many ways. It’s not about NCR, it’s not about 2 litre vehicle and it’s not about diesel. It’s about the uncertainty that it has caused. Many companies, especially MNCs, have announced that they will not make investments in India. Many companies are unable to decide on what to do and whether or not to invest. So, I hope this interim judgment is followed quickly with the final judgment.
But hasn’t the proposed 1 per cent green cess one has to pay for buying a diesel vehicle put it at a disadvantage and the uncertainty over diesel vehicles continue?
But that’s not the first time. If you look at the excise duty, there is a special 1.5 per cent extra on diesel vehicles under 2 litre. If you look at the registration tax that we pay in many States, there is a higher tax on diesel vehicles. So, it is not the first time that there is an extra levy being put on diesel. Fortunately, the 1 per cent cess is not make or break. Therefore, we will hopefully be able to manage without much pain. May be some part will be absorbed and some of it will be passed on to consumers. That will depend on manufacturers. But at least, we will be able to sell diesel vehicles and we will be able to say that diesel vehicles are after all not so bad.
Are you seeing retraction from customers on diesel vehicles?
It’s too early to say that. For Mahindra specifically, it’s not a big deal because we have moved most of our products to under 2 litre. And therefore, if I look at the judgment specifically, it’s not a big deal for Mahindra. But the implication that with this judgment we put the diesel ban issue behind us — that is important.
Have you shifted all your products to less than 2 litre capacity? You have an option for a variant there?
We have shifted the large selling models — Scorpio and XUV — to less than 2 litre. The only one which we have not shifted and which we will be doing it shortly is Xylo.
Given the uncertainties over diesel, what’s the strategy on investing for petrol technology? Also, what will you be looking at when it comes to investing in future technologies?
Well, there are many moving wheels right now and we have to cater to many possible scenarios as they may emerge. There is an environmental need. There is a customer pull. There is also CO2 emissions that we need to be concerned about. And, there is also what might happen on alternate energy vehicles such as electric and hybrid vehicles. Therefore, to plan a linear scenario is almost impossible.
We have to keep all our options open. We have to invest in petrol technology, invest on diesel, electric, hybrid and other things like bio and CNG technologies. It’s a complex situation. But we are reasonably okay in terms of planning. We have fortunately planned for a petrol technology line-up much before the (diesel ban) scenario emerged. And, therefore, everything is in process.
We had invested for electric vehicles. So, that is in the process. We have also planned for hybrids. I am not so much concerned in terms of the planning, keeping all the options or mixing up the scenarios when it emerges. We are prepared for all this. I am also not concerned about the investment. It’s not very large to cater to the requirement.
What I am concerned with are the human resources that are required. Though we have the MRV (Mahindra Research Valley), where we set up a modern infrastructure and a fairly large team. But even that will not be sufficient to do all the things we need to do. The biggest concern today is to have the right number of qualified engineers to do all these projects. So skill becomes the main constraint. It will take time. That’s a struggle but we will manage.
Mahindra was the first to venture into electric vehicles. We have seen you launch Mahindra Verito Electric? How is that segment panning out for you?
I think the potential here or the expectations have always been higher so far, but delivery has not been up to the mark. In spite of all the push the government has put through the FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme, we have not seen any kind of pull being created in the market.
We are still selling the same 8,200 vehicles a month, which is still not sufficient to really consider electric vehicles coming main stream. We continue to hope every quarter that sales will pick up. We are investing in technology, in products and in capacities with the hope that electric vehicles will become main stream and not remain at this level where few hundred vehicles are being sold. The good thing is that the government and the relevant departments are very serious about electrifying the fleet. But everything is not coming together as yet. But I don’t think it is not very far. I have been saying this for few years. We do believe in the technology. We do believe that India can take a lead in electric vehicles.
Coming to the recent sales and earnings numbers, you have pretty much surprised the Street. The utility vehicles grew 13 per cent and exports are up 10 per cent in Q1. Do you think the worst is over?
I think in terms of automotives, the worst is behind us. Last year, we launched 9-10 products, which all happened as per our plan. And this is the year to harvest that and get the volume growth coming from that. In the first quarter, we had a 13 per cent growth in the overall volume. I am hoping the same volume growth pattern will continue and perhaps even accelerate in the coming quarters.
What are the new launches that are lined up this year?
It depends on how we perform and what we had planned internally. Given that the market has become very competitive and given that there are a number of products in each sub-segments, to expect that we are going to have the kind of waiting list we had in XUV 500 will be a bit optimistic.
It will happen once in a while. Industry had some products during this period where there was a waiting list. But it’s not something that one can expect to see with every product we launch. But overall if I look at the volume and the growth, we are reasonably satisfied.
The margins had dipped in Q1, which has been a matter of concern? What’s your outlook on that for FY-17? Do you think you can improve on the margins in coming quarters?
The marginal dip in Q1 was primarily because of the absence of the Hardwar benefits that had an impact of 1-1.5 percentage points. If you add that back, we are back to the same margin as we had in the Q1 of last year. Clearly, when you have a larger portfolio coming from new products, it will have an impact on margins. As the products mature, the margins will keep improving.
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