Nakra expressed caution when commenting on the economy's projected slowdown in FY24, compounded by inflationary pressures.
25 Apr 2023 | 4217 Views | By Shahkar Abidi and Amit Vijay M
Reinforcing its leadership position, Mahindra & Mahindra, which launched its new-gen Bolero Pick up on Tuesday, believes that the upcoming monsoon season and the much-needed reversal of high-interest rates will be key to the pick-up segment achieving its projected growth of 5-7% during FY24.
According to Veejay Nakra, President ...
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Reinforcing its leadership position, Mahindra & Mahindra, which launched its new-gen Bolero Pick up on Tuesday, believes that the upcoming monsoon season and the much-needed reversal of high-interest rates will be key to the pick-up segment achieving its projected growth of 5-7% during FY24.
According to Veejay Nakra, President of the Automotive Division, M&M, during the peak of the pandemic, small commercial vehicles continued to grow on the back of e-commerce and other supplies, despite sales in other segments coming to a halt. Furthermore, during the past five years, LCVs in the 2-3.5 ton range grew by around 18%, added Nakra on the sidelines of the launch.
The growth in LCVs (light commercial vehicles) continues even now with the huge boom in e-commerce activity and demand for optimised hub-and-spoke-driven last-mile deliveries across the country being reflected in the 554,585 LCVs sold in FY203, accounting for 59% of total commercial vehicle sales, according to SIAM data.
Nakra expressed caution when commenting on the economy's projected slowdown in FY24, compounded by inflationary pressures. Nakra stated that two factors—a good monsoon and declining high interest rates—will be crucial in determining whether the Society of Indian Automobile Manufacturers (SIAM) growth expectations of 5-7% in the light commercial vehicle segment will materialise. Two different possibilities are already under play, as far as the monsoon is concerned, Nakra said, alluding to the differences in conclusions over rainfall by different forecasting agencies. While private weather firm Skymet asserts that the upcoming monsoon will be “below normal," the government-run Metrological Department (IMD) predicts that rainfall between June and September will most likely be “normal to above normal.”
Even as Nakra, acknowledges the government's recent measures to control inflationary pressures, industry stakeholders remain cautious over the "mixed signals" from the Reserve Bank of India (RBI). Despite raising its benchmark repo rate six times in a row to 6.5% since May 2022, the RBI recently left it untouched, citing concerns over the impact of global financial turmoil on the economy. The repo rate is the interest rate at which the RBI lends money to commercial banks or financial institutions in India in exchange for government assets, and changes in the rate can significantly impact the movement of money in the market. While the central bank has stated that its policy remains focused on the "removal of accommodation," it has suggested that more rate hikes may not be ruled out with the evolving situation.
The impact of high-interest rates on small transporters, who constitute about 60% of total customers and are currently feeling the pinch, needs to be considered. Such customers rely heavily on external financing, with around 90–95% of the loan value amount being availed, making them more susceptible to the effects of fluctuating interest rates compared to larger fleet operators.
As uncertainty over the monsoon and inflationary pressures persist, various projections from global financial agencies indicate a slowdown in the Indian economy going forward. The World Bank predicts that the country's real GDP will fall to 6.3% in FY24 due to the delayed effects of monetary policy tightening, heightened uncertainty in growth, and reduced government spending, which may lead to limits on local consumption. Any weather-related shocks, such as excessive or inadequate precipitation or temperature fluctuations, may also place the RBI under pressure to increase interest rates. In contrast, the Asian Development Bank (ADB) suggests that any deterioration in the geopolitical climate could further weigh down global demand, increase uncertainty, and thus slow India's growth rate while driving up inflation. Despite this, the ADB anticipates robust domestic prospects, with high growth projected in FY24 and FY25.
Blurring lines in different categories spurring growth
According to Nakra, the pickup category has grown due to a blurring of lines between the less than 2-ton and 3.5-ton pickups. This has been achieved by the company launching city versions with smaller cabins, a narrower track, a better-turning radius, and shorter noses to make them more applicable for intracity applications. Rural and semi-urban areas continue to be strong on movement with large pickups, while the city application has helped make entry into urban markets.
M&M, for its part, claims to have sold over two million units in the pickup segment since debuting in 1999, roughly one million of which were sold in the past six years alone. With a market share estimated to be around 60%, the company came close to hitting 200,000 units sold last year, thereby increasing the lead over Mumbai-based rival Tata Motors. Talking about its retail networks, M&M's management asserted that in addition to having around 1800 touch points across the country, the company has created a channel of 4000 locally trained technicians so as to offer services to its customers within a 25-kilometer range.
Demand for diesel picks up, as CNG gets costlier
Nakra noted how pickup trucks serve as a vital tool of the trade for transporters and are subject to consumer preferences driven by fluctuations in fuel prices. For example, CNG prices recently surged, reaching diesel or even higher levels, causing a shift back towards diesel in specific regions. "We have to wait and see how the price differences between fuels pan out going forward," he cautioned, adding that M&M has the flexibility to meet changing consumer demands through interchangeable CNG and diesel capacity.