Your Q3 performance and margins were a bit of a miss for auto as well as the farm segments. When do you see the launch expenses and commodity costs tone down? Did you guide for a flat Q4 on the back of these two factors?
There were some big ups this quarter. One was the double digit revenue growth. I always say, if revenue growth is there, then both the efficiencies and effectiveness is very high and that will follow in spite of having some commodity pressures. Second, EBITDA grew and PAT grew at 60%. So it was a great quarter for us.
The margins were subdued but that is due to the two factors that you said — commodity prices and new product launches. Commodity prices were very high and we have been able to pass on some. We did not pass the balance. But now the commodity prices are ebbing and therefore over a period, we should be able to pass this on and hopefully we will have some margin accretion as well.
The second part is new product launches. At the time of new product launches, you always recognise that the margin is slightly lower because of two factors — neither the price in the market nor the cost is mature. Over a period of time, as the volumes goes, price and the cost mature and operational efficiency comes into play. So over the next few quarters, that also will pay out and seven quarters in a row, we have shown revenue growth and five out of seven quarters, it has been 10% plus and the balance all have been 5% plus. It has been a great set of five-seven quarters for us. I think margin will follow if revenue accrues.
When it comes to overall new launches, do you believe that is going to drive your growth going forward? Can you also tell us a little bit about what was the discounting in Q3 and the inventory level?
First and foremost, let’s talk about new products and what that entails. There was half a per cent improvement in UV market share, 1% market share improvement in the overall auto space, 2% increase in market share in CV and 3% improvement in three-wheeler market share. This is on the back of product launches which we had so far both on the UV, CV and the three-wheeler side. As we go forward, you will have the new product launches, which is the XUV300 coming and that along with the other product launches will lead to volume growth and that means revenue growth will follow.
I was talking about your overall discounting in Q3. Can you update us on the inventory levels?
In inventory, during Q3, we focussed on making sure that our retails were higher than our billing, bringing our inventory to a level that we are comfortable with. Both in tractor and auto, our inventory levels are where we wanted to be and it is a comfortable level. We do not have high inventories up in the field.
Second, coming to the discount, the discount levels are a little elevated during this period as more product launches and more activity happened but it is a trade off when you have high material cost, high price increase because of material costs. There is a certain amount of adjustment time and therefore discount happens in that way except for some HCV where very high discounting levels are there. Rest will be moderating more, though it will not go back to as low as it used to be say a year back.
Just in case raw material costs do not move as predicted, could we see further rate hikes? How is the pricing strategy likely to shape up at M&M?
First, at this point of time, we are very clearly seeing commodity prices easing quite a bit and that is on the back of crude prices already coming down.
The impact of that has still not come fully to the Indian market. Therefore, there is a little bit of price increase which in a sense was carried forward from the past. The material cost has grown not so much as much the price in the market so at the appropriate time I am sure the industry will take a price increase n the short term.
Coming to your question about theoretically what happens if commodity prices increase further, I think pricing is not a science. It is an art and a science. We will have to gauge if the market still wants the product and not push the demand downwards. So each of the industry players will try to gauge what is that they can pass on and that is why you saw in the last few days, we have not been able to pass on the full cost increase.
Going forward, if there is a theoretical case that is what will happen, happily we are not in that situation. We are in a situation where costs are moderating and going down and therefore we will have a much more easier take of path in the future.
You have also had a relatively better quarter compared to some of the other OEMs. That does not seem to be the end of the tunnel yet because there is a worry about a lot of headwinds for the sector as whole as well, the BS-VI, the tractor cycle. Do you think that these concerns are justified and can we assume that FY20 could be a little tempered?
First and foremost, we seem to have done well in the previous quarters. I always divide auto into two groups. One is the CV and one is the UV. A personal transportation in terms of UV, commercial transportation in terms of CV. CVs are growing quite fast and I do not mean M&HCV here. I see commercial vehicles in the auto segment. I think they are growing very well and even in Q3, you saw that ours was anywhere between 10% and 30% in terms of growth of those segments.
Clearly, a very good growth is possible and this growth should continue because infrastructure and transportation needs — both intracity and intercity — are continuing. In case of UV, there are a lot of product launches we are doing including XUV300, along with Marazzo and Alturas which should give us a good amount of buoyancy in terms of volumes and therefore growth in volumes and market share.
Clearly from Mahindra point of view, we are very well placed to for growth in both CV and UV segments. With the launch of our lead acid three-wheelers, with the launch of e-auto and e-rickshaw in the lithium ions space, we are very well poised to see growth there as well. I see possible growth going forward and also a very positive sentiment coming on the back of budget and RBI rate cut.