Mahindra Mahindra to cut output as SUV demand slows

Moneycontrol Bureau

Mahindra & Mahindra will observe "no production days" at its automotive plants this month as demand for sports utility vehicles, driving the auto industry till a few months ago, has started slowing on the back of a rise in excise duty and increase in diesel prices.

"M&M, as part of aligning its production with sales requirements, would be observing 'no production days' at its automotive plants for a period ranging from 1 to 8 days during the remaining period of July," the India's largest utility vehicle maker said on Thursday.

M&M's subsidiary Mahindra Vehicle Manufacturers Ltd will also shut production for about 8 days this month at its plant at Chakan near Pune, it added.

The automobile industry in India, especially the passenger cars and medium and heavy trucks, has hit speed bumps for over last one year as customers postponed new purchases amid expensive loans, high petrol prices and the overall economic slowdown. Demand also shifted to utility vehicles as petrol-diesel price gap widened last year and several companies launched new compact UVs like Renault Duster, M&M Quanto and Maruti Suzuki Ertiga.

However, following a hike in excise duty on SUVs to 30 percent from 27 percent in the Union Budget and the partial de-regulation of diesel prices, allowing public sector oil marketing companies to raise diesel prices in small proportions each month, consumer appetite for SUVs has lowered.

M&M's total sales in June declined 8 percent year-on-year to 38,092 units. Sales of its passenger vehicles, which includes utility vehicles and Verito sedan, were down 13 percent to 17,232 units.

Fitch Group company India Ratings cut its outlook on the auto industry to stable-to-negative from stable on Wednesday. It expects passenger vehicle volumes to drop 5-12 percent in the current financial year.

"Price conscious buyers opting for UVs in the sub Rs 7 lakh price range (which accounts for significant proportion of segment volumes) appear to be deferring purchases as they are also faced with steadily increasing diesel prices," India Ratings said.

M&M says that despite the cut in production, there is unlikely to be any adverse impact on availability of its vehicles due to enough inventory in the market.

M&M is not the only company cutting output.

Maruti Suzuki , India's largest passenger car maker, has reduced production of diesel engines as well as diesel cars following the slowdown in demand and is now operating only two shifts instead of three at its Manesar plant.

M&M shares were trading up 1.2 percent at Rs 923.70 on NSE in morning trade. The broader market was up close to 2 percent.

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Nachiket Kelkar
nachiket.kelkar@network18online.com