BackMahindra and Mahindra Q3 profit up 0.87% to Rs942.14 crore
Net sales declined 9.02% to `9,465.94 crore from `10,404.91 crore in the year-ago quarter
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Mumbai: Mahindra and Mahindra Ltd (M&M), India’s largest maker of utility vehicles, on Friday reported a slight increase in net profit for the fiscal third quarter amid lower sales and higher employee costs.
Net profit rose 0.87% from a year ago to ₹ 942.14 crore in the three months ended 31 December, M&M said. The profit was boosted by a one-time gain of ₹ 299 crore, which came on the back of the receipt of Tech Mahindra Ltd shares upon the merger of M&M’s associate Mahindra Engineering Services.
Net sales at the Mumbai-based automobile maker fell 9.02% to ₹ 9,465.94 crore from ₹ 10,404.91 crore in the year-ago quarter. Employee costs for the December quarter rose 11.5% to ₹ 609.48 crore.
Analysts polled by Bloomberg had expected a net profit of ₹ 660.8 crore on net sales of ₹ 9,355 crore.
The maker of Arjun tractors and the best-selling Scorpio sports utility vehicles saw volumes contract in both segments. Tractor volumes for M&M in the local market declined 26% to 56,293 units as the impact of an unevenly distributed rainfall and untimely sowing took a toll on its farm equipment business.
The company’s market share in the tractor segment fell 110 basis points to 39.7% over a year ago. One basis point is one-hundredth of a percentage point.
Pawan Goenka, executive director at M&M, also attributed poor tractor sales to the softening of farm incomes owing to lower prices of food crops and higher prices of agricultural inputs.
“This has been one of the worst quarters for tractor sales in 10 years," Goenka told reporters at a press conference after the earnings announcement.
The decline for the industry was less steeper with overall volumes dropping 22% to 141,844 units in the December quarter compared to a year ago.
Goenka doesn't expect tractor sales to turn around until the onset of the monsoon in the second half of the current calendar year.
“A tight focus on inventory reduction is the reason for Mahindra’s tractors declining faster than the industry," said S. Parthsarathy, chief financial officer at the Mahindra Group. The high margin tractor business accounted for 37.3% of the company’s revenue.
Meanwhile, in the absence of new model launches by the maker of the XUV 5OO and Bolero models, and buyers’ preference shifting to petrol vehicles, Mahindra’s utility vehicle sales dropped 8% to 49,724 units from a year-ago period.
The decline was sharper than the broader market, which dropped 6% in the same quarter compared to a year ago.
“We lost the battle in the R&D (research and development) and not in the market," said Goenka, adding that “this year is going to be a year of launches for Mahindra."
In a bid to recover ground, the company plans to launch at least three new models every quarter starting from the first quarter of fiscal 2016. This would include a completely new model, a refresh and a new variant of an existing model.
Almost every passenger vehicle the company plans to launch in the forthcoming months will have a petrol offering. Presently, the company’s model line-up is entirely diesel-driven.
“Though we remain bullish given the outlook the company has shared, we expect profitability to improve only marginally in the quarters ahead," said Bharat Gianani, senior research analyst at Angel Broking Pvt. Ltd.
While tractor volumes will remain subdued till the industry recovers, the margins in the auto business will remain capped due to the marketing expenses incurred on new model launches, he added.
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