Mumbai: Higher sales and lower spending on raw material, boosted profits at Mahindra and Mahindra Ltd (M&M), the country’s largest maker of utility vehicles and tractors. For the three months ended 30 September, the firm’s stand-alone net profit soared 241% to Rs702.9 crore and net revenue increased 35% to Rs4,557.77 crore beating analysts’ estimates.
The numbers do not include those of the firm’s subsidiaries.
The growth was primarily led by the company’s utility vehicles portfolio which includes the Scorpio, Bolero and Xylo, and farm equipment. Vehicle sales grew 43.7% over the corresponding period last year to 55,280 units on lower borrowing costs and a festive season that began early. And tractor sales weren’t affected by the deficient monsoon and grew 32.4% to 38,811 units.
The earnings took analysts by surprise. However, most of them mantain that it will be difficult for the company to replicate its performance in the ensuing quarters. S Ramnath, analyst at IDFC-SSKI Research Securities Ltd said that while the results were better than expected the company will not be able to continue to outperform as raw material costs inch up and sales volumes stabilise. According to Bloomberg data, from the first quarter of the current fiscal to the second, prices of aluminium, steel, and rubber have gone up 24%, 14% and 16% respectively on a sequential basis.
Riding high: A file photo of the M&M tractor plant in Mumbai. Abhijit Bhatlekar/Mint
The quarter saw aluminium, steel and rubber prices decline by 31%, 45% and 25% compared to the same quarter a year ago and M&M’s raw material costs expressed as a proportion of sales revenue dropped to 64% from 70.6% a year ago. Anjani Choudhary, president of company’s farm and equipment sector said M&M has, on average, saved Rs11000 to Rs12000 on each tractors. Tractors account for 40% of the company’s net revenue. He expects raw material prices rising at least 4-5% by the year-end.
A Mint poll of five brokerage firms had estimated a net profit of Rs435.6 crore. Jatin Chawla, an analyst at IIFL Ltd, said: “The margins are beyond our estimates and we will be looking at an upward revision of our target price for the stock, ” he said.
Shares of Mahindra rose as much as 3.6% to Rs923.4 and changed hands at Rs915 at 2.26pm in Mumbai. They closed at 927.75 up 3.93%. The stock has more than tripled so far this year and is the second best performer in the 30-stock benchmark index of the exchange.
Bharat Doshi, chief financial officer at Mahindra and Mahindra, said: “The company’s best quarterly performance ever.” The company’s operating profit margins, a significant benchmark of a corporation’s profitability, climbed almost 12 percentage points to 18.24%. Like the profits of other auto firms such as Bajaj Auto Ltd and Tata Motors Ltd, M&M’s margins were boosted by significant costs savings on the purchase of key raw materials like aluminium and steel.
Doshi admitted that while he does not see an abnormal increase in raw material prices, the upward trend in steel prices will put some pressure on the company’s profit margins. And Choudhary said that he sees raw material prices rising by at least 4-5%.
At a consolidated level, the Mahindra group’s consolidated revenue and other income during the quarter grew 6.4% to Rs8262.2 crore.
Net profit after considering the Mahindra Holiday Resorts India Ltd’s initial public offering was Rs843.6 crore against Rs373.3 crore.
However the numbers aren’t comparable to last year’s owing to the merger of Punjab Tractors Ltd, in the current fiscal.
Bloomberg contributed to the story.