Mahindra & Mahindra defers Rs 1,000 crore capex plan for auto, tractor segments

Mahindra & Mahindra defers Rs 1,000 crore capex plan for auto, tractor segments

Mahindra & Mahindra (M&M) has deferred its planned capital expenditure of `800-1,000 crore for the auto and tractor segments owing to a prolonged slowdown in auto sales. The company has also put on hold other discretionary capex, managing director Pawan Goenka said on Thursday.

M&M had in late May announced its plan to invest ` 18,000 crore over the next three years, including `12,000 crore towards capital expenditure and `6,000 crore in its subsidiaries.

Following a year of slowdown in vehicle sales, many manufacturers have put on hold their investment plans, and have instead reduced workforce and cut production to reduce costs. Goenka said if sales do not pick up this festive season, the company may have to cut production in October too. M&M had shut production across plants for up to 13 days in the April-June quarter and recently said it would shut production for 8-14 days in the July-September quarter to adjust stocks to market demand.

“Clearly, the capacity which we expected will be required 2-3 years from now is less, therefore there will be a slowdown in capacity investment as we would not want to increase capacity before it is needed,” Goenka said.

With poor auto sales leading to thousands of job losses across the value chain, Goenka warned there could be more layoffs if the slowdown continues till a brief period. “Employment level at OEMs are more than the current level of production. If the slowdown continues, my worry is you may see more layoffs this fiscal as most OEMs are overstaffed,” Goenka said.

Auto sales across segments fell 20% year-on-year (y-o-y) in August. While passenger vehicle sales dropped by 34% year-on-year (y-o-y), falling for 13 out of the last 14 months, two-wheeler volumes fell around 20% y-o-y in August. Commercial vehicle sales plunged by a massive 40% y-o-y, as poor retail sales due to weak consumer demand have left dealers saddled with high inventory.