Mumbai: Mahindra and Mahindra Ltd (M&M), India’s biggest utility vehicle manufacturer, beat Street estimates with a 20% rise in first-quarter net profit, as strong demand for its sport utility vehicles (SUVs) offset sluggish sales at its key tractor business.
Mahindra said on Wednesday that net profit for the June quarter rose to Rs.726 crore from Rs.605 crore a year earlier. Net sales rose 40% to Rs.9,248 crore.
A Thomson Reuters analysts’ poll had pegged profit at Rs.625 crore on revenue of Rs.9,045 crore.
Earnings were driven by the XUV 500, the SUV launched in September last year. The company’s passenger utility vehicle segment, which also includes the Bolero, Scorpio and Xylo, sold 58,615 vehicles, up 32%.
The results surprised analysts. Both the topline and margins were higher than expected, said Surjit Singh Arora, analyst at brokerage Prabhudas Lilladher Pvt. Ltd.
“There is an earnings upgrade by at least 6-7% in the offing,” said Arora, referring to Mahindra’s stand-alone results.
Net average realization benefited from price increases in the automotive segment and higher proportion of the XUV in the sales mix, said Yaresh Kothari, analyst at brokerage Angel Broking Pvt. Ltd.
Thanks to the XUV, Mahindra’s passenger car sales have outpaced local rivals such as Maruti Suzuki India Ltd and Tata Motors Ltd with its line-up powered by diesel, a fuel that is cheaper than petrol in India due to state subsidies. Even as high petrol prices, weak economic sentiment and the steep cost of borrowing dissuaded car buyers from purchasing vehicles, sales of utility vehicle (UV) models—90% of which are fuelled by diesel—continued unabated. While passenger car sales in the first two months of the current fiscal expanded merely 3% to 331,580 units from a year ago, UV sales expanded 51% to 52,725 units.
UVs led by the XUV contributed “handsomely to the margins,” said V.S. Parthasarathy, executive vice-president, finance, mergers and acquisition at Mahindra and Mahindra corporate centre.
Mahindra sold 32,000 units of the XUV 500 till July since its launch in September, and has an order book of 20,000, Pawan Goenka, president, automotive and farm equipment, said on an earnings call with analysts.
The company is in the process of ramping up capacity from 4,000 units per month to 5,000 units.
“We will stop at 5,000 and are unlikely to go beyond those levels as I’m not sure if it’s a sustainable demand,” Goenka said. He expects demand for the model to be robust for another year or so.
In a bid to offset the increase in raw material prices, Mahindra raised prices of tractors and UVs by 1-2.5% during the quarter. This in turn helped the company sustain tractor margins despite volumes being sluggish. M&M sold 56,861 tractors in the domestic market compared with 57,500 tractors last year.
With the monsoon rain being deficient, Goenka doesn’t expect tractor sales to improve anytime soon.
“The drought-like conditions prevailing in several (Indian) states today has only added to the risks facing domestic companies,” the company said in a statement. “Our near term outlook on the economy is cautious and watchful.”
India is likely to suffer its first drought in three years as rains fail to meet seasonal averages, dealing a blow to Asia’s third largest economy, where more than half the farmland is dependent on the monsoon.
Addressing shareholders at the 66th annual general meeting, outgoing chairman Keshub Mahindra said, “It has been a rough year for the company but we expect the second half to be better.”
Having served as director for 64 years and as chairman for 48 years, he stepped down to make way for Anand G. Mahindra.
Mahindra closed at Rs.722.75, up 3.92% on BSE. The benchmark Sensex closed at 17600.56 points, down 0.01%.