India’s biggest tractor and utility vehicle maker, Mahindra and Mahindra Ltd (M&M), said on Wednesday that its consolidated net profit for year ended March 2008 rose 4.9% to Rs1,571 crore, at a pace much slower than expected, as higher material costs in the vehicle-making units and forex losses offset gains from other businesses.
M&M’s consolidated revenue for the year was Rs25,929.60 crore, a 35% gain over the Rs19,137.84 crore a year ago as its real estate, technology and financial services units contributed more.
M&M’s vice-chairman and managing director Anand Mahindra. The company reported a 6.4% decline in net profit to Rs221 crore for the quarter ended March, citing higher input costs (Photo by: Madhu Kapparath / Mint)
Earnings at M&M’s automobile division in the latest quarter dipped after prices of steel and other materials rose sharply and eroded profits.
The company declined to share the consolidated numbers for the fourth quarter ended March 2008.
“With the domestic economic environment deteriorating significantly in recent months and the US and European economies slowing down, financial year 2009 is clearly going to be a challenging one,” M&M said in an emailed statement.
The company, which lost out on a bid to acquire the iconic British brands of Land Rover and Jaguar earlier this year, benefited from the performance of subsidiaries such as Tech Mahindra Ltd and Mahindra Holidays and Resorts India Ltd (MHRIL).
Tech Mahindra had a 32% growth in revenues and more than 170% increase in profit, while MHRIL posted a 56% revenue growth and a 93% profit growth—all from a year ago, the company said.
On a stand-alone basis, or just the auto business, M&M reported a 6.4% decline in net profit to Rs221 crore for the quarter ended March, citing higher input costs. Revenues for the period grew 15.4% to Rs3,627.25 crore.
A Mint poll of analysts had forecast a fourth quarter net profit of Rs225 crore.
Full year numbers for the company were subdued due to a 4.7% decline in the sales of tractors—a more profitable segment for the company— due to a credit crunch as banks backed off vehicle loans, and higher interest rates. For fiscal 2009, the auto businesses’ revenues grew 15% to Rs13,069 crore and net profit increased 3.3% to Rs1,103 crore.
“We estimate 5% sales decline in financial year 2009 ...as financing intermediaries show reluctance to support tractor credit,” wrote brokerage firm Merrill Lynch’s S. Arun and Vikas Sharda in a report downgrading the company’s rating to ‘sell’. “The company’s inability to significantly raise prices in utility vehicles to compensate a surge in commodity prices should pressure margins,” the analysts added. The report was published a day prior to the results.
The M&M stock fell 0.46% to close the day at Rs641.60 on a day the Bombay Stock Exchange’s Sensex gained 1.5%.