The early projections hint at a below normal monsoon right now. What are you reading into this as far as the tractor volumes are concerned? After the strong recovery that we have seen in the tractor volumes in the last two quarters, do you think that trend could continue or do you think monsoon is going to be a very big factor and challenge the growth numbers?
Before I come to monsoon, just a quick backdrop. What was two or three quarters back green shoots in terms of rural demand, now seems very firm and there is a real, sustained recovery taking place. It seems to be staying and further add on to the fact that the MSP is being based on cost. If that means that the farmers can look at recovery much more, there are lots of good positive notes to augur and that also is a supporter for continued demand.
Coming to monsoon, we have had two years of good monsoon and that itself augurs well for the coming year because we are not coming in with anything negative. A little bit of hot summer right now augurs well for a good monsoon is what I have heard from IMD. So, that is also a positive but even in case 90% plus rain only happens, it should still be a very good year from an overall industry as well as rural point of view.
Let us talk about the commercial vehicle business. It seems that you are pretty sorted with it comes to the tractor segment growth. When it comes to CVs which started as a joint venture with Navistar, yet to turn profitable, volumes for LCVs have been quite encouraging. A) I want to get an update on that and what is the update on the M&HCV business as well. By when can we see it breakeven finally?
So, first of all let me talk about HCVsWe are the fastest growing HCV brand in the current year. We grew at 54% YTD and that augurs very well and we have grown not in line but much faster than the market growth has been. On top of that, LCV has been good. Looking forward, we not only can continue on the good performance but also have the range completed through a launch of ICV and M&HCVs and complete our range. Next year, we are really looking forward to all of them coming together. Clearly, the M&HCV unit in the analysts meet said that they are very positive about an EBITDA breakeven next year and then on we go to create much more value. So, we have turned the corner very much on the growth path in HCV and M&HCV and LCV.
Whereas the LCV and the tractor sales are looking up, some would argue that the unique proposition for your passenger car business which was making a steady SUV car, is getting challenged. There are new players. There are old players which are now eyeing market share of the SUV market and some would argue that the monopoly status which you had 8-10 years ago, is getting challenged.
Very rightly put that we had monopoly. Competition coming in is good for the market. The whole size increases and so it has in this particular case. But if you look at three or four of our products — whether it is Scorpio or Bolero or XUV — all enjoy what you call evergreen products and one of them has even double century in terms of number of years it has been, 20 years in the scene. We have got evergreen iconic SUV, UV products.
The market size has increased a lot due to competition which is good news and we continue to see traction in that area. What has happened further is that we are looking forward to launching four new products next year which should bolster our things and some of them are in areas where we are not present at this point of time, so we are looking forward to a good kind of rebound and last but not least SUV, our traditional strength which is the rural market was little bit under stress in the last couple of years as you said in the last couple of quarters have seen an upswing and now seems to be very strong rural demand so a strong rural demand, good product launches in the anvil and overall anyway the growth is even in the last two quarters which you have seen augurs well…
A question which has always intrigued me is that if I look at the current valuations of Mahindra & Mahindra, it is still getting a holding company discount. The challenge with such an ownership structure is that the shareholders will never get their dues. The promoters will never be able to unlock the true value. Are you working on something where you would be able to unlock the value and the crossholdings of Mahindra & Mahindra?
First and foremost, what I am hoping and what I am starting to see is that we will get a premium for being a federation rather than a discount. The last couple of years has been very dull for the manufacturing sector overall. If the overall multiples are a little bit subdued for M&M, I would not worry. I would treat it as something that my shareholders can look forward to in terms of jump in market price as growth starts to come back into the manufacturing as we have seen in the last couple of quarters.
As far as the holding company is concerned, M&M is an operating company on one side and investing company on the other. We have been here 70 plus years giving an IRR and a return upwards of 20% to the market. I am sure the market has seen that and rewarded us in terms of share price increase and will continue to do so. Sometimes people tell me do not fix what ain’t broke and that is a good advice.
But times are changing and globally companies are now focussing on mono line of business. I understand that Mahindra & Mahindra is more like an investment company which has incubated several businesses –the IT business, the lifestyle business and the NBFC business. If I really look at focussing on one single entity, Mahindra & Mahindra is still trading at a discount considering the kind of value proposition in the subsidiary wealth they are sitting on.
I see that as a cup half full and the potential can be unlocked in the future. I am telling my shareholders and my investors to have a long look forward and therefore in a sense, the share is a little undervalued. I would agree and say there is a huge upside potential and that is what I would look forward to.
The second part is that times are changing and we always should take input from whatever changes that are happening but sometimes we do not necessarily have to imbibe what the western world teaches us. Sometimes we can also bring a new way of management and I would expect Mahindra and such companies to be the new norm in times when it goes forward and says that how a federation can create immense value.
What is happening in electric vehicles? We have earlier talked about the first mover advantage from a sale of 1,000 units in 2017. What is the kind of figure that you are looking at by end of 2020? What is your strategy to expand the EV business?
EV has a very bright future. Various figures have been talked about right up from 100% of all vehicles sold in 2030 will be electric vehicles. I do not just subscribe to that. It will be much slower in terms of trajectory but whether it is 30% or 50%, whatever be the number, it is a very big one.
We have the advantage of having EVs on road and that gives a lot of kilometres of data and we understand customer preference and what happens when technology meets the road. We have had a lot of these inputs and that gives not just first mover advantage.
In 2020, I would not be surprised if we can offer electric vehicle of the same kind — whether it is UV, passenger car or three-wheelers. We can offer all kinds of automobiles or mobility devices on electric vehicles. We would put a manufacturing capacity in Chakan which would produce about 5,000 a month and today that seems a good start but in future, we may find that we may have to increase that quantity and that will be both a hope and a wish.
Could you give me specific timelines and exact time periods of launches that you are working with when it comes to EVs specifically?
All I can say is that we will launch a series of EV products but I will leave to my counterparts to talk about product launches at appropriate time. There will be a series of products which will come out over a period of time and by 2020, we will have a new set of products on the road with an EV base.
Is it going to be the fleet segment that will be your main area of focus given the government incentives or would you look at a premium segment as well?
Today there are two segments which are in focus and they are the ones which people are buying today. One is the government which is buying and the second one is the fleet segment or the B2B.
Whether in Nashik, whether in other places, Uber, Ola, have been the first off the block, but over a period of time consumers will also try. So, our focus will be to address both these segments and to address the retail segment. So, we will have products for both segments. But currently, bigger volumes come from fleet owners and government.
Stock markets always focus on is the fact that you should buy a business which could be at an inflection point in terms of profit, market share gain, sales or any disruptive technology or launch. Which of the companies under the M&M umbrella according to you are at a genuine inflection point both in terms of sales, growth and margin expansion?
As far as the Sensex companies are concerned, big companies are coming off a flat two to three years and now the inflection point is coming. I would tend to argue that all the companies which are listed have a huge amount of potential going forward and it is possible to grow faster.
For example, Mahindra Finance can really see a huge amount of growth or Tech Mahindra where the potential to grow is immense. But what we are focussing is that the value creation opportunity starts when it is not listed and therefore we did showcase to investors within auto farm $3 billion businesses which are upcoming. I mean, it is not billion dollar business today but which has the potential in the medium term to hit about a billion dollars and therefore they could be the value creators for auto and farm in the next three years.