Economic slowdown impact: Mahindra and Mahindra defers Rs 1,000-cr capex plan by year

New Delhi: Owing to the slowdown in the automobile industry, Mahindra & Mahindra has deferred its planned capex of around Rs 1,000 crore by a year, which, if not reversed within this fiscal, would lead to more job losses in the sector, the company’s MD Pawan Goenka said on Thursday. The company that recently underwent a plant shut-down exercise to adjust production also said that if sales do not pick up in the festive season, it may have to undertake the exercise again in October. “At Mahindra & Mahindra (M&M), we probably will end up deferring about 10 percent capex for auto and tractor (together)… it would come to around Rs 800-Rs 1,000 crore,” Goenka told reporters here on the sideline of SIAM annual convention. He was responding to a query on whether the current slowdown in the auto industry has forced the company to postpone investments. [caption id=“attachment_85377” align=“alignleft” width=“380”] Pawan Goenka, Mahindra & Mahindra managing director. Reuters image.[/caption] While the company has not slowed down on investments on new products, it has deferred investments on other activities such as capacity enhancement and discretionary capex like repair and maintenance, Goenka said. “The capacity that we expected to need in two or three years from now is less as compared to the year-ago, therefore there will be a slowdown in capacity investment as we would not like to invest… probably for a year,” Goenka said. He said the auto industry is currently going through a challenging slump which has already resulted in mass job losses. “…If the industry does not turn back on to positive growth for the remaining part of the months of the fiscal year, we may see more layoffs,” he said. According to the Society of Indian Automobile Manufacturers (SIAM) vehicle manufacturers have laid off around 15,000 temporary workers while dealers have witnessed around 2.8 lakh job losses. Goenka further said, “Employment levels that we have today amongst original equipment manufacturers and suppliers is probably more than what the current level of production will justify.” Referring the lay off of 1,500 temporary workers out of a total of 30,000 at M&M, he said, “That is like 5 percent reduction when the volume is down by 20 percent. We are not removing (employees) just because volumes are down, but if it continues beyond a certain point then the industry would be unable to carry the extra (workforce)”. Goenka said there is a need for support from the government to help the auto industry come out of the current slowdown in the form of GST cut. He stated that in the past, when slowdowns happened, reduction in excise duties had helped in picking up demand immediately. M&M, which underwent plant shut down in August to adjust production may have to undertake similar exercise again in October if demand remains subdued, Goenka said. “Probably in the month of September, we will produce full capacity; and in October, we may adjust if the sale in Navratra don’t go as per expectations,” he said.