Mumbai: Mahindra and Mahindra Ltd (M&M) reported an unexpected 16.8% fall in quarterly profit after it suffered foreign exchange losses, and signalled its entry into the two-wheeler segment.
India’s top utility vehicle and tractor maker by sales said it would own 80% of a company that would buy the assets of two-wheeler maker Kinetic Motor Co. for Rs110 crore. Kinetic would own the remaining stake in the new company.
“The acquisition gives us an opportunity to emerge as a full-range player with a presence in almost every segment of the automobile industry,” Anand Mahindra, vice-chairman, said in a statement.
Mahindra also makes the no-frills Logan sedan in a joint venture with Renault SA and plans to build medium and heavy commercial vehicles in a venture with a unit of Navistar International Corp.
Mahindra, which earlier this year lost the race for Jaguar and Land Rover to larger rival Tata Motors Ltd, said net profit in the quarter fell to Rs159 crore from Rs191 crore a year ago.
It incurred a Rs77.9 crore foreign exchange loss, which it said was primarily due to the rupee’s depreciation. The rupee fell 6.8% against the dollar in the quarter, upsetting hedged positions of several exporters who thought the rupee would stay firm after it had rallied more than 12% in 2007. Net sales rose to Rs3,293 crore from Rs2,613 crore.
The profit result lagged a Reuters poll forecast of a net profit of Rs219 crore on net sales of Rs3,225 crore.
Operating profit margin, a key gauge of profitability, fell to 10.06% from 11.19%.
Vehicle makers in Asia’s third largest economy have been battling the high cost of raw materials such as steel and rubber, while rising interest rates, higher fuel prices and high inflation have crimped consumer spending and depressed demand. Tuesday’s unexpectedly strong tightening by the central bank to quell double-digit inflation is expected to nudge rates on vehicle loans even higher.
Mahindra said it planned to absorb its Punjab Tractor unit in seven-nine months, a move it expected would lift profit and revenue by 20%.
Mahindra would issue one share for every three Punjab Tractor shares held. It acquired a 43.3% stake in March 2007 and subsequently raised it to 64.4%.
Mahindra, which earlier this year pulled out of a manufacturing alliance with Renault and Nissan Motors Ltd, aims to enter the US market next year with a pick-up truck and a sport utility vehicle, as it seeks to expand globally
With a capex plan of Rs7,500-8,000 crore over the next three years, Mahindra is raising Rs700 crore from a placement of a 3.7% stake with a unit of Goldman Sachs.
Shares in Mahindra, which have a market worth of Rs13,175 crore, fell 30% in the June quarter, compared with a 21% fall in the auto sector index and a 14% drop in the Sensex index. Mahindra shares trade at 12.7 times forecast earnings, compared to a multiple of 8.3 times for Tata Motors.