Auto maker Mahindra & Mahindra (M&M) Ltd on Friday announced a 33.29% increase in its profit after tax for the quarter ended December, riding on a 20.3% rise in farm equipment sales, including the high-margin tractors business.
M&M saw profits rise to Rs1,112.27 crore, from Rs834.47 crore the year before. The company’s third quarter revenues increased 1.47% to Rs11,777.98 crore.
This, despite a 7% decline in revenue from the automotive segment—its largest line of business—to Rs7,453.08 crore. This includes utility and commercial vehicle sales.
“Demonetization affected rural and semi-urban spending but we still saw only a single-digit drop in revenue,” V.S. Parthasarathy, chief financial officer, M&M, said at a press conference.
The automaker saw an 8.3% decline in vehicles sold in the domestic market year-on-year to 112,852 units and an 11.7% decline in utility vehicles sold, at 51,772 vehicles.
The drop in farm produce prices affected rural incomes, which in turn hurt M&M’s sales, Parthasarthy said.
According to the company’s numbers, staples like onions, potatoes and tomatoes saw a 20-60% drop in prices during the quarter, severely restricting rural households’ purchasing power along with the cash crunch that demonetization brought in.
“Overall, the results were weaker than our estimates”, Nitesh Sharma of Philip Capital India said. “We saw that 7-8% decline in the automotive segment. We believe that net-net, the positive gains from the farm equipment division will be negated by the loss of market share in the automotive segment. We continue to believe that this has largely been due to a weaker product pipeline, especially in the SUV (sports utility vehicle) segment, as compared to competition.”
However, the company’s sales of farm equipment, of which tractors is the largest business, grew 21% in volume (consolidated results), helping keep margins up.
“We saw a phenomenal 60% growth in volume in October and actually saw negative growth in the November-December period,” Parthasarathy said. “This has given us a 44% market share, which is the highest ever.”
“Although tractor sales grew in this quarter, the pace of growth has declined substantially,” Sharma said. The company sold 72,363 tractors, up 20.8% year-on-year.
M&M also registered a Rs363.78 crore exceptional net profit from the sale of “investment in subsidiary companies and a joint venture”, as per the company’s statement.