Mahindra might curb expansion plan if gov foists diesel tax

M&M, the largest manufacturer of SUVs in India announced that it might put a hold on its expansion strategy. The reason for this step is a probable downfall in sales that might result if the government implements its decision of imposing further tax on diesel driven vehicles. According to the president of automotive and farm equipment department of M&M, Mr Pawan Goenka, the company will be adversely affected if the diesel tax is imposed. They are still not sure if the curbing plan will be for 3 months or for ever but the company will definitely reduce its goals for the coming year if the additional tax is imposed.

Almost 99 percent of the sales of the company accounts for diesel powered models, this includes SUVs, MPVs and sedans. If diesel tax is implemented, M&M will be suffering the worst amongst all the companies because of its heavy production of the diesel vehicles. According to a senior employee of Mahindra, the company will be forced to reduce its targets for the coming fiscal year. M&M has till now witnessed a 35 percent rise in terms of sales in 10 months which ended in January. The sales figures of the company have risen to an impressive 197,000 units, but the possibility of buyers shying away from buying diesel supported vehicles has prompted the company to take such a step. The company is all set to cut down some of its investment plans which were made on the basis of assumed growth, which seems to be difficult to achieve now. The final decision in this matter will be taken by M&M only after the budget is announced.

The investment plans of the company till 2014 include Rs 5000 crore as capital expenditure for M&M ltd and Rs 2000 crore for associated groups like Mahindra Vehicle Manufacturers and Mahindra Navi-star Automotives. The earlier planned expansion, which will now be curbed, was to be done at the Chakan plant as all the other manufacturing locations of Mahindra are already overloaded with work. According to economists, the government will impose an additional Rs 80,000 excise duty on diesel run vehicles in order to stop the misuse of diesel. The major companies that will suffer from this are M&M, Tata Motors and Maruti Suzuki India with Mahindra heading the list as they are mainly in the SUV manufacturing department. The company fears that apart from its expansion plans, the overall demand of its cars may also suffer because of this.