Surging inflation, high interest on loans that have put a constraint on vehicle financing and rising raw material costs have taken its toll on two of India’s major automotive manufacturing companies, Tata Motors and Mahindra & Mahindra. The decline in Tata Motors consolidated profit after tax to Rs 2167.70 crore for FY 08 compared with Rs 2,169.99 crore, and M&M’s standalone profit posting a moderate rise of 3.3% for the fiscal to Rs 1103.4 crore, demonstrate how these companies are fighting a tough battle against situations beyond their control.
Anand Mahindra, chairman, M&M, told FE, “We have faced such challenges before too, but we are now looking at how we can convert these to opportunities. At all stages across manufacturing, we are trying to bring about better efficiency.” Senior executives are working hard on introducing drastic cost control measures, he added. Automotive sales contribute close to 45% of Mahindra’s overall group revenues. Asked how a further rise in fuel prices would put pressure on the company’s sales of utility vehicles (UVs), known to be high fuel guzzlers, Mahindra said, “Here again, we have an opportunity offered by our diesel vehicles.” Commenting on the M&M results, an analyst with Religare said, “This is more or less in line with our expectations. We were anticipating Rs 211 crore net profit for M&M standalone. However, tractors are a concern due to drop in sales and financing issues.” Tata Motors has also said that the company’s margins have come under pressure during the year due to rising interest rates. The company has also said that it will focus on cost reduction. “The automotive industry and Tata Motors is facing challenging times,” the company said. According to a research report by Enam Securities, “With inflation continuing to surge, a cut in interest rates is unlikely in the near term.?
“Overall there is a cautious approach towards the market citing high interest rate and input cost,” said Abdul Majeed, who leads the auto practice at PricewaterhouseCoopers.
He added that automobile manufacturers are not looking at locking inventory, since it involves cost, and are instead adjusting their production according to demand.