InvestorQ : Why is M&M facing problem of demand exceeding supply and what does it mean for the stock?
sara Kunju made post

Why is M&M facing problem of demand exceeding supply and what does it mean for the stock?

Mary Joseph answered.
1 month ago

M&M is currently facing a problem of too much demand compared to supply. Normally this is a good problem to have but this can work both ways. It is true that demand is robust and that is a great development for Mahindra & Mahindra. However, if the company is not able to meet the demand surge adequately in the next few months, it is perfectly possible that buyers may gravitate towards other models that are available off the shelf. Waiting time looks on paper and is salutary to numbers, but they can at times backfire too.

How big is the problem for M&M? Even the company has admitted that demand for their cars is outstripping production capacity. There has been a surge in demand for the rough and ready cars manufactured by M&M, especially for its extremely popular sports utility vehicle that was recently launched. June was a good quarter for M&M but in terms of units sold, M&M had also reported that sales of its passenger vehicles or PVs had soared to 149,803 units i.e. 74% growth on yoy basis. It may not sustain, but it is a challenge now.

The open bookings have grown by 273,000 vehicles in this year. M&M has kicked off a massive capacity expansion programmes but that is of little help in the short to medium term. Recently, the Scorpio-N got 100,000 orders in 30 minutes while annual production capacity is 6,000 units. Bookings are worth Rs18,000 crore and a big boost to sales. M&M has gained from the perceptible easing of semiconductor shortages. But, the biggest concern for M&M would how to cater to this surge in demand for their cars.