M&M to invest Rs 15,300 cr to fortify position in auto, farm eqpt and EVs

Mahindra is eyeing a pole position in SUVs in volume terms - a place it held three years ago

Mahindra and Mahindra (M&M) will incur a capital expenditure of Rs 15,300 crore in the auto, farm equipment, and electric vehicle (EV) businesses over 2022-24, the firm said. Of this, it has already pumped in Rs 3,200 crore in FY22, while the remaining Rs 12,100 crore will be done during FY23 and FY24. This is significantly higher than the capex done by the company in the recent past.

Prior to FY21, it was pumping in Rs 3,000-4,000 crore annually. The pandemic, coupled with chip shortage, made the company defer the expenditure. M&M’s capex plans are in line with the trend at its peers Tata Motors and Maruti Suzuki India. Both companies are incurring higher capex in the current fiscal year compared to pre-pandemic years, to capitalise on the demand momentum. 

M&M’s aim is to fortify its position in the SUV and tractor segments and enter the electric passenger vehicle business with the ‘born EV’ platform from 2025, the company’s top officials said at an annual press meet on Monday.

Of aforesaid amount earmarked by Mahindra, Rs 11,900 crore has been earmarked for the automotive business, including EVs, while Rs 1,900 crore will be used to ramp up the capacity of the XUV7OO and other models.

The XUV700, the firm’s flagship model that was launched in August 2021, has a wait time of 18-24 months and the investment will help reduce this to some extent, said Rajesh Jejurikar, the firm’s executive director for auto and farm equipment sectors. On an average, the company has received bookings of over 9,500 units per month and has 78,000-plus open bookings, he said.

“We have overcome the chip shortage through a variety of actions we have taken to mitigate the situation, including creating alternate suppliers, and they have helped. The effect can be seen on our volumes in the year gone by,” he said.

For the SUV business, where it claims to be the market leader revenue-wise with 17.9 per cent share, Mahindra has identified maintaining a strong brand value, developing platform and EV strategy, de-risking the supply chain, and cost optimisation as the key pillars. It plans to launch the new Scorpio, codenamed Z101, on June 27.

With these interventions, Mahindra is looking to gain pole position in the SUV segment in volume terms as well – a position it held three years ago. At the end of the March quarter (Q4), the company’s share rose to 16.5 per cent against 15.8 per cent a year ago.
 

Anish Shah, managing director and chief executive officer, Mahindra Group, said while the situation has eased, it will have to be monitored closely.

Meanwhile, making an entry into the e-SUV space, where rival Tata Motors has a head start, Mahindra will launch the e-XUV3OO in the first quarter of 2023, said Jejurikar.

The four-metre-plus offering will mark the beginning of the firm’s EV rollout. This will be followed by the unveiling of the company’s “born electric vision,” on August 15 at Mahindra Advanced Design Europe in Oxfordshire, UK.

Last year, Mahindra announced plans to launch eight EVs. Earlier this month, it announced a partnership agreement with Volkswagen for the latter’s batteries and EV components. This agreement will eventually convert into a supply contract, Jejurikar stated.

“Due to semiconductor shortage and commodity cost inflation we expect subdued performance over the next quarter. However, we expect strong demand for SUVs to continue over the next 2-3 years and the premiumisation trend to further pick up,” wrote Mitul Shah, head of research, at Reliance Securities, in a note. A strong pipeline in both tractors and auto also bodes well and will aid in margin expansion, he added.  

A strong order book for SUVs (170,000, plus open bookings) coupled with a better-than-expected margins in the March quarter earnings and an optimistic guidance by the company bumped up its shares. M&M’s shares gained 4.69 per cent on the BSE on Monday to close at Rs 997.9. 

Referring to EVs, Anish Shah said the firm is in the first few overs of a test match, and Reva was like a “practice match” before the test. “There is a long way to go. We will have a very strong range of electric SUVs that we will bring in. We are confident that we will have a very strong position in electric.”

For the farm equipment sector, Mahindra has earmarked a capex of Rs 3,400 crore through FY24. Of this, Rs 400 crore will go into setting up a new tractor plant. Mahindra’s share in the tractor market grew 180 basis points to 40 per cent in FY22.

With revenue of Rs 55,354 crore, up 29 per cent year-on-year in FY22, it was a record year for Mahindra’s farm and auto sector.