Mahindra remains committed to Truck and Bus Division

The decision to continue was taken after a comprehensive review and MD Anish Shah expects Mahindra Truck and Bus Division to start delivering strong returns in five years.

By Ketan Thakkar calendar 09 Mar 2023 Views icon9070 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Mahindra remains committed to Truck and Bus Division

Mahindra & Mahindra, the country's second largest commercial vehicle maker has decided to continue its support to the loss-making Mahindra Truck and Bus Division (MTBD). This side of the business participates in the highly competitive intermediate, medium and heavy commercial vehicle business in the country.

The decision was taken after a thorough analysis of the business by the top management of the company, as it was failing to meet its internal target of 15-18 percent return on equity.

"'We finally came to the conclusion that it is a strong business. It has a strong product set, which we can run and it can deliver return on capital": Anish Shah, Managing Director of M&M.

In a post earnings call, Anish Shah, Managing Director of M&M said the Mahindra Truck and Bus Division has long term strategic importance for the company and he expects the business to start delivering returns in coming five years. “For the MTBD (business), we did a lot of detailed evaluation and we finally came to the conclusion that it is a strong business. It has a strong product set, which we can run and it can deliver return on capital. As we completed that assessment, we also realised that the carrying value of assets reflects what the reality was and hence we have adjusted as a onetime impairment,” explained Shah.

Mahindra & Mahindra took an impairment charge of Rs 630 crore on the Truck and Bus business during the Q3 earnings, which naturally impacted and pulled down the company's profit after tax.

As part of the capital allocation plan devised at the peak of Covid-19, Shah had categorised the group businesses under three categories. Subsidiaries which had a clear path to 18 percent return on equity were housed in Category A, those with delayed or unclear paths to making money but had a quantifiable strategic impact, were put in Category B and the Category C firms had unclear paths to profitability. Shah said the MTBD was a category C company which very much needed a review.

In the overall commercial vehicle space, M&M is the number two player with a market share of 27 percent but these are predominantly small commercial vehicles and pick-up trucks. In the growing light commercial vehicle space, M&M is, in fact, ahead of Tata Motors as the number one player due to its pick-up trucks volumes, which incidentally is not part of MTBD.

In April to December of FY23, M&M sold about 1.83 lakh units. But if one were to look at the models sold under MTBD, that is intermediate, medium and heavy commercial vehicles, just 6,000 to 7,000 units were sold in the current financial year with a market share of just two percent despite being in this business for over a decade. It is to be noted, however, that MTBD sold a similar number for the entire last financial year, indicating a recovery in volumes.

Rajesh Jejurikar, Executive Director, M&M said that the company generates significant revenues from the business and is an important part of the commercial vehicle business for the company. “We are seeing very good traction. Some of it is coming from the industry bouncing back as well. We have also completed a full portfolio of products. We were not in the ICV segment, which is the platform that we developed more recently. We believe that will create a growth momentum. There is a good improvement in our retail volumes running into Q3. We do believe that there is a strong story to play out here with a strong product portfolio,” Jejurikar said.

During the current financial year, the sales of its intermediate commercial vehicles range under the Furio brand was 1,100 to 1,200 units. The supply chain issues had also impacted the company's volumes in the buses segment in the recent past, with that being sorted Jejurikar sees an upside on the volumes going ahead.

“Our first step will be to get to a level where you are able to turnaround the business, in the sense of bringing in viability, strong brand momentum for our products and we have taken many actions to enable them. as Anish said, we have re-examined the future of this business, we believe it is something, which is worth committing ourselves to, but there was a need to do a one-time correction of the real value of the assets that we had. We go into this business with a lot of optimism as we move ahead,” reiterated Jejurikar.

M&M had entered the medium and heavy truck segment in 2008 through a joint venture with American Truck Maker Navistar, as the business could not achieve desired results due to Navistar problems back home, the US truck maker decided to pull out of the JV in 2012. At its peak, post the NBFC crisis and implementation of axle load norms, the volumes have been on a consistent downhill.

This feature was first published in Autocar Professional's March 1, 2023 issue.

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