Slowdown effect: M&M defers ₹1,000 crore of planned capex

‘At current production levels, every carmaker is overstaffed’

Homegrown auto major Mahindra & Mahindra has deferred 10%, or about ₹1,000 crore, of its planned capex to cope with the prolonged slowdown in the auto sector, the company’s managing director Pawan Goenka said on Thursday.

Mr. Goenka also warned that if the industry did not return to positive growth for the remaining months in the current fiscal, the sector may see more layoffs as almost every carmaker is overstaffed, based on the current level of production.

Pointing out that the company’s investment in products had not slowed down, he said the investments in building capacity and discretionary capital expenditure would slow down.

“The capacity that we expected 2-3 years from now is less than a year ago. So, there will be a slowdown in capacity investment. And probably about a year’s deferral… discretionary capex like repair and maintenance will be deferred as much as possible. At Mahindra, we will probably end up deferring 10% of capex… about ₹800-1,000 crore.”

‘More domestic’

Mr. Goenka pointed out that that the current slowdown was different from the previous three slowdowns that the industry witnessed. This one was “more domestic”, while the previous ones were caused more by global scenarios. “Therefore, a little bit of intervention by the government could easily get us out of trouble. But this time, there is no magic wand that can work… a variety of things need to be done together to get us out of the current situation,” he said.

Stating that it was “unkind” to say that the industry was not doing anything, he said it was only after attempting everything from product launches to price incentives, the industry had turned to the government.

On layoffs in the company and the sector, he said M&M has had to lay off about 1,500 temporary workers, of a total of 30,000. “That is like 5% reduction when volume is down by 20%. We are not removing people just because volumes are down, but if it continues beyond a certain point then the industry would be unable to carry the extra people.”

Mr. Goenka also said that it would be more difficult for commercial vehicles to turnaround than the passenger vehicles, as the latter was a discretionary purchase, while CVs were purchased based on the demand. “For CVs, just a reduction in GST may not help; you need more of an economic turnaround.”

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