Mumbai: High cost of retail finance coupled with losses on account of rupee depreciation dented the stand-alone profits of tractor and utility vehicle maker Mahindra and Mahindra Ltd (M&M) by as much as 99.7% to Rs1.2 crore in the quarter ended December against the same quarter the previous year.
The company’s earnings for the third quarter of fiscal 2008-09, announced on 31 January, brought curtains down on months marked by steep decline in volumes and severely dented profits—a result of depressed demand in the domestic market and colossal foreign exchange losses overseas for all the auto makers.
M&M’s profits for this period, however, were mainly driven by one-time exceptional gain of Rs157.1 crore arising from certain changes in the holding structure of the company’s forging business, said a press release issued by the company. The firm also reported a decline of 14.4% in its gross revenue and other incomes to Rs2,885.9 crore against Rs3,371.1 crore in the same quarter the previous year. Mahantesh Sabarad, an analyst with Centrum Broking Pvt. Ltd said, “We were looking at a net profit of Rs147 crore. The forex losses have come as a surprise.”
Depressed buying sentiments led to the share of automotive segment in the company’s aggregate revenue contract by 23% to Rs1,370 crore in the said quarter. The segment reported a loss of Rs10 crore against a profit of Rs168 crore in the previous quarter. This was partly because of the apportioning of the losses to the segment incurred as a result of cancellation of forward covers. The company’s sales of utility vehicles in the domestic market, the mainstay of the automotive segment, declined by 25.7% to 29,184 units.
Uday Phadke, president, finance, legal and financial services sector, M&M, said, the results are attributable to three factors—low volumes, losses on account of foreign exchange and pressure on margins due to raw material prices, which could not have been passed on to the end-customers.
On whether the company will be able to recoup the losses incurred in the quarter gone by, he said, “It would be governed by the relative strength of the rupee versus the dollar. If the rupee continues to depreciate, it will impact the company’s profitability.”
Analysts said the industry is going through a tough phase and the prevalent exchange environment has made it even more difficult. “Only in the event of rupee appreciation happening fast, recovery will happen. If the rupee to the dollar continues to be at 49-50 levels even for the next quarter, there is no question of these forex losses being recouped,” said Sabarad.
The unit sales of the farm equipment segment, which contributed 54.7% to the company’s total revenue in the December quarter, also declined by 14.7% to 20,686 units. Exports also witnessed a sharp fall of 54.3% and 26.6% in vehicle sales and tractors, respectively, over the same quarter the previous year.
Global recessionary pressures primarily led to the decline, said the release. In the nine-month period ended 31 December, the firm reported a growth of 7% in its revenue to Rs10,253.5 crore. The net profit, however, slumped 59.6% to Rs356.4 crore.
With the exception of the market leader in the two-wheeler segment, Hero Honda, which reported a 9.1% increase in quarterly profits on the back of a better realization of its products, all the auto makers either reported an unprecedented decline in profits or barely missed slipping into the red. Those with the largest stake in the market bore the maximum brunt. For instance, car market leader Maruti Suzuki India Ltd’s net halved to 54.3% in the stipulated period.
Tata Motors, the country’s largest commercial vehicle manufacturer, reported its first decline in seven years. Ravi Kant, managing director, Tata Motors, said the worst is over for the company.