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Rising commodity prices weigh on M&M results

Rising commodity prices weigh on M&M results
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First Published: Mon, May 30 2011. 11 26 PM IST
Updated: Mon, May 30 2011. 11 26 PM IST
Mumbai: Increases in tractor and commercial vehicle sales drove up Mahindra and Mahindra Ltd’s (M&M) net revenue for the three months ended 31 March, but steep rises in raw material costs held its profit below market expectations.
Profit rose 6% to Rs 606.5 crore compared with a year earlier, ignoring a 27% jump in revenue to Rs 7,391.2 crore in the same period.
A Mint poll of five brokerages had estimated a net profit of Rs 680 crore.
Mahindra’s shares fell 6%, the most since 8 February, to close at Rs 663.05 on the Bombay Stock Exchange. It was the worst performer on the benchmark index Sensex, which ended the day nearly unchanged.
The Mahindra stock has declined 15% this year.
“The past year was a year of growth but it wasn’t short of challenges,” said vice-chairman and managing director Anand G. Mahindra.
Pawan Goenka, president of the automotive and farm equipment sectors at Mahindra, said he expects raw material prices to continue mounting pressure in the current fiscal.
“We expect commodity prices to increase further by 2%” over last year, he said.
Mahindra’s operating profit margin for the 2010-11 fiscal narrowed to 14.7% from 15.9% in the previous year, said Bharat Doshi, group chief financial officer.
With demand for commodities in China and India pushing up prices, Mahindra spent 33% more on steel, rubber and other materials in the fourth quarter as it increased output.
Employee costs increased 60% in the quarter to Rs 426 crore as the auto maker raised provisions for interest payments on workers’ provident fund, Doshi said.
These cost increases offset gains from the rising sales of tractors, light commercial and utility vehicle sales in the March quarter.
The automotive sector, which includes utility vehicles and commercial vehicles, sold 101,123 units in this quarter, growing 18.06% over a year earlier, while the farm equipment sector, which includes tractors, grew 26% to 59,570 units.
With the exception of Bajaj Auto Ltd, profits at most auto firms were singed by higher costs for raw materials such as natural rubber, steel and aluminium.
Steel prices rose 6% and aluminium prices 7% in January-March compared with the preceding three months, putting pressure on profitability.
Lead, a key ingredient in making batteries, rose 9% over the December quarter. The highest increase in price was for natural rubber, up 33%, Sachin Gupta and Chetan Vohra of Edelweiss Securities Ltd wrote in a recent report.
Operating margin, or the margin from earnings before interest, taxes, depreciation and amortization (Ebitda), fell to 13.78% from 15.73% in the December quarter. “I expect a downward revision of 6-7% in company’s earnings for the fiscal 2012 owing to lower Ebitda margins,” said Surjit Arora, analyst at brokerage Prabhudas Lilladher Pvt. Ltd.
Mahindra’s net profit for fiscal 2011 increased 27% to Rs 2,662 crore as its revenue gained by one-fourth to Rs 20,295 crore.
Goenka, who heads the Society of Indian Automobile Manufacturers, said that with sales slowing in the first few months of this calendar year for all auto makers the industry body has lowered its overall sales forecast for the sector from 16-18% to 14-16%. Mahindra group’s consolidated revenue increased 17% to Rs 39,708 crore and net profit by 35.7% to Rs 3,023.2 crore.
shally.s@livemint.com
Bloomberg contributed to this story.
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First Published: Mon, May 30 2011. 11 26 PM IST