increased prices to protect margins and we lose market share. This is what the street is trying to fight against. In the future, what would you like? Channel checks show that Mahindra as well as regional players have gained shares?
As you mentioned, there was some disappointment on the market share front in some pockets, especially in strong markets and that came as a surprise. In some pockets of UP and Bihar, which were our strongholds, we see a decline in market share.
We have researched the reasons for what happened and what did not work and obviously corrective actions have been put in place over the past two weeks. We therefore hope to return to normal margin levels. It has nothing to do with the price increases as the price increases had been in line with the industry group. We haven’t had an extraordinary price increase and that’s a normal trend and even now the industry is carrying inflation and it’s the same for us.
So it has nothing to do with gaining or losing market share, but there has been some disruption in certain pockets, particularly in the stronger markets that the company is aware of and we are taking corrective action to ensure that this is corrected in the balance of the month.
You say you will find him. Can you tell us a bit about how it will go? Should the street expect a gradual recovery of lost market share? Of course, you also have Kubota now and therefore a lot of technical expertise?
Kubota integration has not yet started. Obviously, it will be gradual and slow. Movement will happen on that, but having both worked on the product side as well as the technical side, I think the action you’re talking about was short to medium term, which the company took and that cuts through all the categories – on the supply chain side, on the trade policy side, on the product rationalization side in terms of what was selling and what was not selling.
“ Back to recommendation stories
So it will be a mixture of all the factors that have been put in place now in these pockets. That’s why I think we should be able to roll back and we don’t see a major issue in brand loyalty from a customer perspective that could be of concern. It is more of a short term impact that has been there and the corrective action the company is now offering should help us get back to normal levels.
The market currently fears that the company will sacrifice short-term margin gains in an attempt to regain market share. Is it valid?
I wouldn’t say that because what we do will fit the industry. We are not going to opt for aggressive incentives or discounts for products to gain market share. This was never the strategy the company will follow.
But yes, in the past, there was more focus on the margin as well because in the last five or six years the company has recovered on the profitability front. So that was one of the priority areas, but now it will be necessary to find the right balance between the right level of profitability and market share, which is the company’s mantra in the future.
The other thing I wanted to understand is what happens to the synergies of the Kubota Escorts, as they haven’t materialized yet? The market wants some clarity on this.
The integrations have not yet taken place. The company is in the process of developing the mid-term business plans which internally should be approved by September and in the third quarter we should be able to make them public. Post that once the merger is done through the JV, the real integration work will begin.
Right now we are still operating as separate entities and the process is underway and maybe in a month or so we should be able to really get this going and then things will start working. We will work on the real integration strategy in the second half of this year, once the mid-term business plan is completed. Then we’ll move on to the aggregation part and see how best we can do this.
Many brokerages have cut their earnings estimates for FY23 and FY24 by 20-25%. Do you think the brokerages are too critical here?
In the short term, we expect an impact on margins because inflation is still there and in the first quarter the effect was very high on the margin and it will take some time before we stabilize. It is only in the fourth quarter that we hope to be able to return to the normal level of margins. And so next year, we don’t really see any impact on the margin front.
So it’s more short-term in nature and maybe the next quarter or two depending on how deflation plays out on the commodity side and how much we’re able to really get back to suppliers. In the medium term or next year, we do not see a major impact on margins.
What are the macro-factors at play? Can this be a real headwind for you?
Absolutely. I think the monsoon will play a big role. We have seen that there are some pockets especially on the east side, in Bihar where the monsoon has been slow. This will have an impact on the paddy belt which is the largest amount of grain sown in the country.
But even if the monsoon is good in the rest of the country, which is more rainy, we expect at least the second half to see better prospects for the industry. We still expect the industry to see low to mid-single digit growth this year over last year.