Mumbai: India’s largest tractor and utility vehicle maker, Mahindra & Mahindra Ltd (M&M), said that net profit for the quarter ended 30 September declined 26% to Rs285.94 crore, from Rs386.47 crore in the corresponding quarter in 2006. Sales in the period rose 12.52% to Rs2,802.39 crore, against Rs2,490.5 crore in the year-ago period.
At first glance, M&M seems to have performed better than some expected. According to a Mint poll of five analysts, the company was expected to increase revenues to Rs2,694.48 crore, and net profit was to decline to Rs225.02 crore.
But the figures M&M reported also include an octroi refund, which added Rs61 crore to earnings. Once this is factored in, the profit is in line with analysts’ expectations, and represent a drop of 8.8% from last year’s adjusted profit of Rs246 crore.
Lower tractor sales and an appreciating rupee hit the company’s margins. And there is not much good news from the tractor segment, where the industry witnessed a 10.7% downturn, with demand dampened by higher lending rates.
Interest rates have risen by as much as five percentage points in the last three quarters to a five-year high. The company’s own tractor sales petered out at 20,633 tractors in second quarter, down 5.4% from the year-ago quarter.
“Although tractor sales are expected to remain flat this year, Mahindra’s management believes that it will outperform the industry in this segment,” said Vaishali Jajoo, automotive analyst with the Mumbai-based Angel Broking Ltd.
M&M’s strength continued to be utility vehicles, a segment where its market share increased to 52.6%, selling 35,309 vehicles in the second quarter. Its Scorpio and Bolero models continued to do well, with sales increasing by 8.3% and 26.5%, respectively.
M&M said its outlook for the rest of the year remains positive due to the reasonably good performance of the Indian economy, a lower inflation rate of around 3%, and a good monsoon. The last is particularly important, as it could help prime tractor sales.
“However, worries due to moderation in bank finance to rural sector, sharply appreciating rupee, slowing world growth and fluid, domestic and international financial conditions, are likely to persist,” the company said in a statement.
M&M is also developing three more platforms, apart from the new Ingenio sport utility vehicle (SUV) slated to hit the market next year. These will be an upmarket SUV from its Chennai plant as well as a mass-market passenger and cargo vehicle to be rolled out of Pune.
While the company has not discussed the investments required for these vehicles, Pawan Goenka, president, automotive, at M&M, has said in the past that a new platform can cost about Rs500-600 crore and take three to five years to develop. M&M has announced investments of Rs6,400 crore over three years.
Shares of M&M closed at Rs796.35 each on Monday on the Bombay Stock Exchange, down 0.67% from the previous day’s close. The exchange’s benchmark Sensex was up 3.82%.