Mahindra calls for a concerted policy effort to revive growth
Mumbai-headquartered automaker Mahindra & Mahindra and MVML today reported their financial results for Q1 FY2020. The company reported a revenue of Rs 12,997 crore, down 4 percent, compared to Rs 13,551 crore reported for the same period last year.
For Q1 FY2020, the company reported net profit of Rs 918 crore (-26%), compared to Rs 1,238 crore for the same period last year. The gross profit (PAT and exceptional income) saw a jump of 80 percent at Rs 2,260 crore compared to Rs 1,257 crore reported for the same period last year.
The company says in Q1 FY2020, the Indian auto industry de-grew 12.3 percent, with all segments of the industry reporting a decline. It is after six years, that all segments of the industry posted a reduction in the same quarter. The auto industry excluding two-wheelers fell 15.4 percent driven by drop of 18.4 in the PV industry and the M&HCV goods industry falling by 18.6 percent.
Speaking at the Q1 FY2020 results meet in Mumbai today, Dr Pawan Goenka said the slowdown in the auto industry is worst since 2001. He cited three main reasons for the downturn – liquidity crunch, high prices and weak consumer sentiment.
During the first quarter, the PV segment witnessed the fourth consecutive quarter of reduction, the worst ever de-growth since Q3 FY2001. Mahindra & Mahindra says PV demand continues to be impacted by the slowing down of the overall economy, which along with tight credit conditions and delayed monsoon has impacted consumer sentiment in both urban and rural India. The stress in the agri sector and finance availability has impacted the demand for LCV 2-3.5T (pik-up segment). The HCV goods segment has posted a de-growth of 32 percent, the worst reduction in 23 quarters. The slowing down of economic activity coupled with the increase in freight capacity of existing fleet due to implementation of new axle loading norms has resulted in many transporters either reducing or temporarily suspending their fleet purchase plans.
In Q1 FY2020, the tractor industry also remained sluggish and was adversely impacted due to a weak sentiment in the agri economy resulting from the delay in south-west monsoon, poor spatial distribution in June and weak agricultural incomes impacted by poor price realisation. During the quarter, the domestic tractor industry declined by 14.6 percent with sales of 191,305 tractors, against 223,937 tractors sold during Q1 FY2019. In the first quarter Mahindra sold 82,013 tractors and had a market share of 42.9 percent.
A concerted policy effort needed to revive growth
Mahindra states that the IMF (International Monetary Fund) has pared down its projections yet again for global as well India’s growth in its latest July 2019 outlook. Domestically, data broadly paints a picture of subdued demand, notably in private consumption with firms and households continuing to hold back spending. The RBI has also scaled down the projection of GDP growth for 2019-20 to 7 percent from 7.2 percent earlier.
Monsoon, which is crucial for farm output and growth, has played catch up lately, thanks to copious July rainfall, after a delayed and patchy start. The India Meteorological Department (IMD) has forecast a zero-deficit monsoon in the second half of season, which bodes well for cumulative rainfall as well as Kharif acreage. The resultant precipitation and soil moisture could also turn out to be positive for Rabi crops.
With today's reduction in repo rates, India's central bank the Reserve Bank of India (RBI) has cut policy rates by 75bps till now and is likely to remain accommodative. The lagged effect of interest rate cuts, liquidity infusion and targeted fiscal spending post budget, especially government actions on improving incomes for farmers, cash transfers and sops for affordable housing, could provide support to growth going forward. However, given the current challenging global and domestic growth environment, a concerted policy effort will be required to prop sentiment, put a floor under consumption and revive growth.
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