Mahindra to see substantial loss of vehicle and tractor sales in Q1 FY2021, banks on rural demand

Automotive and tractor major Mahindra & Mahindra (M&M) estimates that it lost sales of 23,400 vehicles and 14,700 tractors in the last month of FY2020 due to the rampant spread of the Covid-19 pandemic, which has severely impacted industry worldwide and triggered significant downside risks to the overall global economic outlook. The company says all its manufacturing facilities and offices were shut down entirely during lockdown period of almost 40 days (March 25 to May 3).

Furthermore, the company estimates that it may likely lose outt on sale of 87,000 vehicles and 30,000 tractors in the first quarter of FY2021, which in turn will impact revenues and profitability.

In a regulatory filing, M&M has stated that due to the lockdown mandated by the government of India from March 25, its entire operations came to a halt. In lockdown Phase 2, some relaxations were given for essential commodities and sale of tractors commenced through dealerships from April 14, 2020.

With further relaxations during lockdown Phase 3 and 4, tractors and automotive manufacturing units and suppliers received approvals and commenced production gradually with safety protocols. Automotive dealerships gradually started operations in Phase 3 in Green and Orange zones, and at present around 75 percent of Mahindra dealers are operational. Mahindra says with lockdown Phase 5 effective from June 1, 2020 that brings additional relaxations, will enable the company to ramp up the production, supply chain and distribution.

As part of ensuring safety for stakeholders the OEM says it has issued and is following the governmental safety guidelines. Going forward, M&M says it is “difficult to estimate the definitive impact of Covid-19 on the operations of the company beyond Q1 FY2021 at this point of time. It is closely monitoring the developing situation arising out of COVID-19 and resultant restrictions imposed by the regulatory authorities.”

Rural demand to drive sales in short-term
In terms of the company’s supply chain, production at its component vendors is also resuming gradually, and almost 100 percent of its suppliers are now operational. However, the company says supplier capacity is restricted as they are facing challenges in terms of working capital, manpower availability, limited working hours, and adherence to Covid-19 safety norms.

The auto major says with the gradual phasing out of the lockdown going forward it expects to see demand revival. It says while it is difficult to predict any demand scenario for the immediate short term, “We expect the tractor demand to show good improvement on the back of several positive factors such as record Rabi production, higher government procurement, announcement of higher MSPs leading to better realization to the farmers and outlook of a normal monsoon aiding sentiments for a good Kharif crop.”

Mahindra says its auto sales traditionally come from both rural and urban segment. It expects quicker recovery in rural India and rural demand to improve sales momentum for the auto sector while urban segment will take little longer time to return to normalcy.