M&M Confident Of Maintaining Margin, Growth Despite Concerns

Mahindra & Mahindra Ltd. expects to grow and is confident of maintaining margin in the long term despite “unprecedented” commodity inflation.

“The company is very robust in handling out-of-ordinary situations that may be encountered on a year-on-year basis. M&M, in the past, has maintained a very healthy level of margin overall and will continue to do so irrespective of short-term concerns,” Hemant Sikka, president-farm equipment sector at M&M, told BloombergQuint's Niraj Shah in an interview.

The commodity inflation, he said, has created pressure on margin since it's not possible to pass all the extra costs to the customers. But M&M envisages that a phased passing of costs over a long period to the customers, coupled with a downturn in commodity inflation will help the automaker and the industry to maintain margin levels in the long run.

Commodities have been rallying since June on account of a post-pandemic recovery, rising global liquidity, a weaker dollar and a decarbonisation push. That prompted M&M, along with other auto peers, to hikes prices across models from January. But that's not the only challenge facing M&M. The company has been grappling with a prolonged supply chain issue, hurting its efforts to accelerate production at a time Indian automakers—reeling with a sales slowdown even before the pandemic—tried to make up for the washout in the initial months of the lockdown. While M&M expects the global shortage of semiconductors supplied by Bosch Ltd. to lower its production and sales in the last quarter of the ongoing financial year, its tractor and three-wheeler production will remain unaffected.

Timely, systematic actions by the government in unlocking the agricultural sector, according to Sikka, aided the demand for tractors. M&M's tractor sales jumped 50% over the year-earlier in January 2021 and exports surged 80% during the month.

M&M is also very bullish on the farm machinery business and expects it to be a sizable contributor to its revenue in the next five years. The company boasts of a very strong pipeline and has been introducing three to four new products each year. “This segment grew 45% in the current fiscal. Although the margin may not be the same as in the mature tractor industry, as long as growth is 30-40% in the upcoming years, it's a good deal,” Sikka said.

Watch the full interview here: