M&M to spend Rs6,400 cr over three years; rupee erodes profit

M&M to spend Rs6,400 cr over three years; rupee erodes profit
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First Published: Tue, Jul 31 2007. 12 19 AM IST
Updated: Tue, Jul 31 2007. 12 19 AM IST
Mumbai: India’s largest tractor and utility vehicles maker, Mahindra & Mahindra Ltd, said it plans to spend a total of up to Rs6,400 crore in the next three years to expand manufacturing capacity and develop new products in Asia’s fourth largest automotive market, even as profit in the latest quarter slowed from weak export earnings.
The investment figure includes some previously announced investments and the company did not give a breakdown of how it will spend the money.
The group’s net profit for the first quarter ended 30 June rose a weak 3.3% to Rs299.6 crore from Rs290 crore, as a strengthening rupee made their products more expensive for overseas buyers and cut into profit.
Sales grew a hefty 40.7% to Rs5,879 crore.
M&M has embarked on an aggressive expansion trajectory and is planning a slew of products for the Indian market, including more cars with its French collaborator Renault SA. It’s also setting up a manufacturing facility in Chennai, where vehicles will be produced not just for Mahindra but for partners Renault and Nissan Motor Co.
It also plans to develop a sports utility vehicle before the end of this decade.
The rupee has gained more than 9% against the US dollar this year and currently trades at about 40.55 to a dollar.
The rise of the rupee means countries which buy goods from India find it more expensive.
On the other hand, Indian companies that bill in dollars lose money when they convert dollars into rupees because each dollar fetches fewer rupees.
“Other expenditure has gone up by 225 basis point as percentage of sales,” notes Vaishali Jajoo, an analyst with Angel Broking Ltd.
Other expenditure, which includes research and development and advertising costs, lowered the operating profit margin, in the quarter to 10.5% from 12.1% in the previous year, Jajoo said.
However, on a stand-alone basis, which doesn’t include income from smaller units, net income for the quarter at Mahindra dropped by 6% to Rs191.2 crore while net sales rose by 17% to Rs2,613 crore.
“High interest rates, strengthening rupee and slowing credit growth are worrisome factors,” the company said in a statement.
Shares of M&M fell 3% to close at Rs752.55 per share on the Bombay Stock Exchange.
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First Published: Tue, Jul 31 2007. 12 19 AM IST
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