Analyst Concall
Festive spirit lightens M&M's auto inventory to 30 days
This story was originally published at 19:21 IST on 7 November 2024
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--M&M: Tractor inventory has to be corrected, will do it in next 4-5 mos
--M&M: Dealer stock way below 30 days for auto, in a comfortable spot
--M&M: Co's light commercial vehicles affected by rural growth slowdown
--M&M: Medium-term target for auto business is to hit 10% margin
--M&M: See fundamental stress in urban India, will be there for sometime
--M&M: See FY25 auto volume growth in mid-to-high teens
--M&M: Seeing rapid adoption of electric variants in 3-wheeler space
--M&M: Last 10-15 days of festival season were good for our tractor ops
--M&M: Saw some very good rural momentum since mid-September
--M&M: Farm machinery business growth has not met our expectations
By Anand J.C.
MUMBAI - The recent festival season helped Mahindra & Mahindra Ltd. clear the inventory level of its automotive business to 'way below 30 days', the company's management said in its post-earnings analyst call Thursday. Auto dealers' body Federation of Automobile Dealers Association said that the inventory levels of all carmakers' passenger vehicles were at a high of 75–80 days in October despite stronger sales.
Passenger cars' inventory levels had swelled in recent months on lower retail demand, which prompted the dealers to offer higher discounts during the festival season. M&M said that between Navratri and Diwali, the retail offtake was in strong double-digits. However, inventory levels of its tractors still require correction, the management said. While the company wasn't very worried about it, inventory levels of tractors are expected to be corrected over the next 4–5 months.
M&M's management said that the festival season was good for all original equipment manufacturers. The management expects the momentum to sustain through the remaining part of 2024-25 (Apr-Mar) for the company. M&M has seen very good improvement in rural momentum over the last 6–7 weeks. The company has revised its outlook for the tractor business, expecting its revenues to now grow 13-15% in the second half of the year.
In the medium term, the company wants to improve its automotive business margin to FY19 levels of 10%. This margin is exclusive of its electric vehicles.
DEMAND SCENARIO
Echoing views similar to that of its India Inc. peers, M&M said that there was a fundamental stress in the urban areas and that it will be around for some time. However, it sees lingering stress in the rural segment easing now. The management said that the last 10–15 days of the festival season were good for its tractor business. It expects the farm equipment business to grow in the second half of FY25, buoyed by tailwinds in the domestic markets even as it flagged worries in the international markets. The company said that the farm machinery business grew at a rate which was lower-than-expected in Jul-Sept. It expects the segment to grow at a higher rate going forward.
Demand for M&M's light commercial vehicles was affected by the erratic monsoon across India, but has been picking up since October, the management said. The company is also seeing very rapid adoption of electric variants in the three-wheeler segment.
In the festival season. M&M also saw a very strong volume growth in sports utility vehicles, which led to an increase in revenue market share, the management said. M&M expects its super utility vehicles segment to grow 15-18% in FY25. The company will announce two new electric vehicles on Nov. 26 which will hit the market early next year.
M&M expects the volumes of its automotive segment to grow in the mid-to-high teens in the ongoing financial year. The company will incur some launch expenses in Oct-Dec which are likely to cause some temporary pressure on its margins, the company said.
The Mumbai-based carmaker increased its capacity of its sports utility vehicles to 54,000 per month in Jul-Sept. It does not plan to add any more capacities for internal combustion engine variants, the management said. Some of its fuel-run models in this segment like the M&M 3XO, Thar, Scorpio Classic have seen higher demand, leading to capacity constraints. As the capacity for the internal combustion engine variants has increased from 19,000 a month to 54,000, the company had not expected the capacity to be constrained. While it expects electric vehicles' capacity to eat into some fuel-run sport utility vehicle capacity, it does not want to wait till it happens. The management said it wants to strengthen its internal combustion engine variants' manufacturing footprint.
M&M announced its earnings for the September quarter during market hours. On Thursday, shares of M&M closed at INR 2,891.35 per share on the National Stock Exchange, down 1.5%. End
US$1 = INR 84.37
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Akul Nishant Akhoury
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