New Delhi: Homegrown automaker Mahindra and Mahindra Ltd is planning to expand the dealer touchpoint network for its passenger and light commercial vehicle (PV and LCV) divisions by over 35% in a year’s time, primarily in rural areas.
The maker of the Scorpio SUV (sport utility vehicle), an immensely popular model in semi-urban and rural areas, aims to have 2,300 such touchpoints by the end of the 2019 fiscal, up from approximately 1,700 at present.
Of the 2,300 touchpoints, about 1,400 will be operational in upcountry and rural locations, according to Rajan Wadhera, president at the automotive division of the Mumbai-based firm. At present, the maker of the Bolero SUV, another best-selling model in the hinterland, has about 900 inland touchpoints.
This network primarily consists of outlets offering servicing facilities in addition to being points of sale. With the ramp up in fiscal year 2019, the number of sales and service outlets are set to rise.
The company also plans to increase, by more than half, the number of local servicemen called Mahindra Mitratechnicians, who are part of an alternate channel that primarily services commercial vehicles, to 4,700 during the same time frame from over 3,000 at present.
“We revisited our network strategy about three years back and realized that the classical approach of appointing 15-20 large format dealers each year would be insufficient to keep up with increasing buying potential,” said Wadhera in an email response.
Mahindra, the UV segment market leader, ceded ground during this fiscal to rivals such as Maruti Suzuki India Ltd in urban geographies as the firm could not capitalise on the burgeoning demand for compact SUVs.
Not surprisingly, Mahindra attributes a larger share of its PV volumes to semi-urban and rural areas than rivals. Up to January of this fiscal, these geographies contributed to almost 43% of Mahindra’s PV sales, managing director Pawan Goenka told reporters in early February.
According to data provided by the company, the rural share in auto volumes for fiscal 2017 stood at 40.5%, up 100 basis points from 39.5% in fiscal 2016.
This figure rises by 100 to 150 basis points every fiscal, Goenka added.
A basis point is one-hundredth of a percentage point.
“Mahindra’s auto division has a very huge thrust in rural India. An increase in disposable income doesn’t immediately translate to a car purchase but it means there is more margin money available (to spend). Therefore, individuals will trade up from a hatchback to an SUV (sports utility vehicle), for example. That’s where the Mahindra is present,” Goenka said in February, without quantifying the increase in expectations.
The most important factor to note is that rural sentiment will become positive, he added.
Analysts said such an expansion will boost sales, in addition to the fillip provided by the budget.
Mahindra’s rural PV play relies primarily on two SUVs—Bolero and Scorpio. Over the years, they have remained fairly profitable for the company despite little investment and change.
“Contributing over half of Mahindra’s UV volumes in passenger cars, the Bolero and Scorpio face little competition in rural markets, so a definite jump is expected. Since the election year is underway, individuals in these markets will advance purchases with the expectation of more cash transfers,” said Priya Ranjan, vice-president at Systematix Institutional Equities, a Mumbai-based brokerage house.
Mahindra’s UV volumes are estimated to grow close to 7% this fiscal, he said, adding that the rural markets will contribute two-thirds of the growth. A larger local presence will increase throughput by 10-15%, Ranjan added.
For the fiscal up to February, Mahindra’s UV volumes grew 5.34% to 209,322 units, according to data provided by industry lobby Society of Indian Automobile Manufacturers (Siam), while sales of small commercial vehicles (SCVs) grew by 39.9% to 12, 434 units.
“The primary motive behind increasing the footprint was to grow sales of SCVs and pick-ups, this segment will see the maximum benefit since the broader segment was not doing well since the past six to seven years,” said Ranjan.
Analysts, who did not wish to be quoted, expect Mahindra’s PV division to clock over 20% growth in sales for the next fiscal year, primarily driven by new launches such as the U321 and S201, in addition to higher rural sales.