BackM&M’s Jul-Sep net profit up 28.4%
Q2 profit increases to ₹978.1 crore on higher vehicle sales
Premium(Pradeep Gaur/Mint)
Mumbai:
Mahindra and Mahindra Ltd (M&M), India’s largest maker of utility vehicles, said second quarter profit rose 28.4% from a year earlier to ₹ 978.1 crore as it sold more vehicles and kept a tight control on expenses.
Sales gained 31% to ₹ 10,786.7 crore.
Mahindra, which has a 50% share of the country’s passenger utility vehicle market, sold 62,751 vehicles in the July-September quarter, a 32% increase from a year earlier.
“The growth in net profit has beaten our expectation as it was about 12% higher than estimated," said a sector analyst at a Mumbai brokerage.
A year ago, M&M got 65% of its revenue from its auto business and the balance from tractor sales. In the latest quarter, revenue from the auto business, especially from passenger utility vehicles, increased to 72%. “The margin expectation from SUV (sport utility vehicle) sales is much higher than tractor sales," the analyst said.
Quanto, the compact utility vehicle M&M recently introduced, generated 5,000 bookings within three months of launch. It sold 4,899 of its new Verito sedans and exported 7,239 vehicles in the September quarter. Exports rose 43% in volume terms in the quarter.
Sales of tractors, however, were affected by an initially deficient monsoon. Mahindra, which had a 40.3% share in the country’s tractor market last year, saw sales drop 12% in the fiscal second quarter to 47,065 units. Mahindra’s engine business grew 11% to ₹ 213.3 crore during the quarter.
“Going ahead we expect the utility vehicle (UV) segment to grow at a two-year average growth of 17.4%, led by its core portfolio and a plethora of new product launches," Ventura Securities Ltd said in a 1 October report. “However, the outlook for the tractor industry remains pessimistic and we forecast M&M’s volumes to drop by 5% in the current fiscal before resuming the growth trajectory (5-8% growth) from next year onwards."
Mahindra’s new XUV 500, a refurbished Xylo and other product launches will sustain volume growth for the company in the utility vehicle segment, the brokerage said.
“After having witnessed an annual growth of 23% over fiscal 2009 to fiscal 2012, Mahindra’s UV sales growth is expected to moderate to 17.4% annual growth to 2,80,000 units over the next two years," the report said.
The XUV 500 model continues to generate good response and is completely booked for the next four-five months, the report said. To meet the demand, the company had to increase production capacity for XUV 500 to 4,000 units a month from 2,000 units earlier.
“New launches, along with the rising trend of dieselization are driving SUV sales; thus, this segment of the industry has grown at over 50% (year-to-date) as against a flat growth for the passenger cars," said sector analysts Aditya Makharia and Ritesh Gupta at brokerage JP Morgan India Pvt. Ltd.
Mahindra’s market share in the SUV segment is at 50% now; its sales in this segment have grown at over 30% (year-to-date), driven by product launches. But the growth may not be sustainable. “The recent fuel price hike could impact near-term growth rates, in our view," the analysts said in a late September report.
“The current economic situation is quite challenging," M&M admitted in a note on Thursday, adding, “but the firm through its continued focus on new product introduction, process innovation and cost control, expects to rise to the challenge adequately."
Shares of M&M rose 3.59% to ₹ 857.55 on BSE on Thursday, outperforming the benchmark Sensex’s 0.26% gain.
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