You took charge of the business when the economy was severely hit by Covid-19. How has the experience been so far?
When I took over FES on 1st April, frankly I didn’t know what business I was taking over, with everything in lockdown and there was no business running at that time. Now the problem that I am grappling with is how to produce enough to feed the market. We are operating at more than 100% capacity utilisation and still not able to feed the demand. I am pleasantly surprised with the kind of demand we are witnessing in the midst of a pandemic.
What has surprised you in terms of demand and earnings?
There is a very strong pull from the rural market. At the end of October, the (tractor) industry has grown by 11% (this fiscal year), and this is after losing almost two months of production due to the lockdown. There are still supply-side shortages to meet the demand. So, demand is very robust.
The rural cash flows are very strong. A key indicator of the same is financing. Farmers are putting more upfront margin money. This year will surely be a positive growth year, but by how much, we will be able to tell only after the festive season.
How are you managing the increased demand?
We have undertaken a series of debottlenecking actions in our plants and at critical suppliers to get higher output. Lot of work is happening in terms of line balancing, process optimisation and kaizen to get more out of installed capacity. We are also giving priority to the domestic market over export. In fact, there are a lot of back orders on the export side and we have asked our dealers outside India to hold on till Diwali. So, domestic is getting more allocation than exports but we will honour our commitments to overseas customers and process export orders post Diwali.
What is your view on the festive season and how do you see the year ending?
Festive buying is going on very well and we are now looking at a very strong Dhanteras and Diwali. Overall, the year will end on a positive note. We were expecting an average September but it came out very strong. We expect the market to grow 10-12% this (fiscal) year.
How long do you expect this cycle to last and what is the de-risking plan?
Currently the demand is robust, we are running on very low stocks, so the current production plans will continue over the next quarter. Festive season is going on very well. What happens beyond that depends on the next monsoon cycle. Hopefully we get another good monsoon. That will be so good.
Though the industry is cyclic, the long-term trend is growth of about 7%, based on data of the last 30 years. Despite an up or down cycle, Mahindra Tractors has always delivered very strong margin performance. In the last few quarters, when business was down, our margins were still holding strong. We have demonstrated this over the several years that we are able to consistently drive performance.
Our overseas revenue to domestic revenue ratio is about one-third to two-thirds. And obviously it helps. Since our 30% revenue is coming from overseas operations, it certainly helps when the cycle is playing differently. Plus, the mechanisation business will start offering new levers of growth.
M&M is pushing for farm mechanisation, how big is that opportunity for the company?
The mechanisation potential is huge. The global farm mechanisation market is $160 billion per annum, out of which tractors is $60 billion, which is about 40%.
The Indian tractor industry is 10% of the global tractor industry with revenue of $6 billion. The share of India in mechanisation is just 1% at about $1 billion (excluding tractors). So, you can see the potential to grow? We believe mechanisation is at an inflection point to grow and we will see newer and relevant products will drive this growth.
The farming practices in India need to change from traditional old practices to more productive practices, including farm mechanisation. As an industry leader, we are trying to bring that change through Krish-E, our farming-as-a-service vertical. Another is to bring in world-class technologies of farm mechanisation, that we are bringing through our companies in Turkey, Finland and Japan and that too at Indian prices. We are doing localisation in two steps; first frugalisation to develop relevant products and then localisation to meet Indian price points.
M&M group market share (around 40%, including the Swaraj brand) has remained at the same level, do you see any upside?
I believe we have a strong product pipeline and have shared our plans about the K2 platform. We are building a strong product. Let me tell you that the Indian tractor market is a very competitive market. We have several strategies mapped in to do well in the market and execute our strategies. All this will help us to do very good business in the coming years
If you could share the potential of the Gromax and the K2 platform…
Our two leading brands are Mahindra and Swaraj. Gromax is our very important third brand and we plan to grow the brand. Various strategies are in place to achieve this.
K2 is our most ambitious new product development project. It’s a global platform which is being jointly developed by Mahindra Research Valley and Mitsubishi-Mahindra Agri Machinery in Japan. We are developing four unique platforms as part of this project. I cannot share more details at this stage.