M&M net profit surges 30% on strong utility vehicle sales

Posts Rs.915 crore profit for October- December quarter; net sales rise 24.7% to Rs.10,242.57 crore
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First Published: Fri, Feb 08 2013. 03 47 PM IST
A file photo of a Mahindra and Mahindra assembly line. Photo: Abhijit Bhatlekar/Mint
A file photo of a Mahindra and Mahindra assembly line. Photo: Abhijit Bhatlekar/Mint
Updated: Sat, Feb 09 2013. 12 55 AM IST
Mumbai: Mahindra and Mahindra Ltd (M&M) posted a 29.6% rise in profit in the December quarter boosted by the continued popularity of its diesel-powered utility vehicles such as the Scorpio and the Xylo, which allowed it to overcome the effects of a slowing economy.
Profit at the maker of utility vehicles and tractors rose to Rs.915 crore in the three-month period ended 31 December, the company said in a release on Friday. Net sales rose 24.7% to Rs.10,242.57 crore from Rs.8,211.66 crore. Sales were beefed up by the Quanto compact sport utility vehicle (SUV) that was launched during the quarter.
The figures, which include the earnings of wholly-owned subsidiary Mahindra Vehicle Manufacturers Ltd, are in line with estimates, said Umesh Karne, an analyst at Bric Securities Ltd.
The Mumbai-based company, which overtook Tata Motors Ltd as the third largest passenger vehicle maker recently, sold 70,483 utility vehicles in the December quarter, 36% more than a year earlier. Still, tractor volumes were almost unchanged at 62,522 units, compared with 62,342 units in the year before.
M&M’s earnings come a day after the government further lowered its estimate of economic growth to 5% for the year ending March from 5.7% previously. That compares with 6.2% growth in the year ended March 2012.
The stock dropped 1.41% to Rs.882.80 on BSE while the benchmark Sensex fell 0.49% to 19,484.77 points.
The flat tractor numbers are a reflection of agricultural growth prospects—it’s seen slumping to 1.8% from 3.86% in the previous year due to poor monsoon rainfall in June-July. However, in an earnings call with analysts, Pawan Goenka, president of the farm equipment and automotive sectors, said the company expects tractor volumes to expand 4-6% by the end of the current fiscal.
“If the monsoon is good, it’s unlikely that the tractor volumes will remain subdued for two years,” said Goenka.
The company plans to launch a Verito sedan shorter than 4 metres, to take advantage of a lower excise slab, and an electric vehicle in the next three months, he said.
Mahindra will also introduce “four new refreshes” of existing models, he said. The company is also working on completely new models that will be ready for a roll-out by the end of fiscal 2015, Goenka added.
With M&M ramping up production of the Quanto and the XUV500 SUV, Karne expects volumes to remain strong. “The only factor, that could slow sales is the hike in excise duty on diesel vehicles in the forthcoming budget,” he said.
Goenka said the deregulation of diesel prices is unlikely to have an impact on its utility vehicle sales.
On 17 January, the government allowed state-run oil companies to raise diesel prices in line with global crude prices. The partial deregulation allows companies to hike prices by 40-50 paise a litre per month for retail customers and nearly Rs.11 for bulk consumers. The move was aimed at reining in the subsidy on diesel, which makes it cheaper than petrol on average. The price differential has led to a disproportionate growth in diesel-driven vehicles.
New model launches will fuel the utility vehicle segment, Goenka said, helping it outpace car sales.
In the nine months to December, passenger vehicle sales in India expanded 59.10% to 402,921 units even as car sales declined 0.33% to 1,381,771 units, according to the Society of Indian Automobile Manufacturers.
With state elections coming up this year and a general election scheduled for 2014, utility vehicles will get a traditional boost as they are used intensively during campaigning, said Mitul Shah, analyst at Karvy Stock Broking Ltd. This will also help M&M mantain volumes.
While sales will continue to expand at a brisk pace for M&M, the entry of new models such as the Ford Ecosport SUV, likely to be launched this quarter, may erode M&M’s market share by 150 basis points. A basis point is one-hundredth of a percentage point.
M&M has a 47% share of the utility vehicle segment. Shah’s firm has mantained a “buy” rating on the firm’s stocks.
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First Published: Fri, Feb 08 2013. 03 47 PM IST
More Topics: Mahindra & Mahindra | automobiles | Results | Q3 |
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