Mumbai: Mahindra & Mahindra (M&M) has posted an unexpected 6.4% fall in quarterly profit, hurt by rising raw material prices and said it faced a challenging year ahead.
Mahindra, which lost the bid for Ford Motor’s Jaguar and Land Rover to Tata Motors, makes the Logan sedan in a venture with Renault and wants to enter the Indian market for motorbikes, the world’s biggest after China.
“With the domestic environment deteriorating significantly in recent months and the U.S. and European economies slowing down, financial year 2009 is clearly going to be a challenging one,” the company said in a statement.
Mahindra, which will start selling its Scorpio SUV in the United States from 2009, said on 28 May net profit fell to Rs2.21 billion ($51.6 million) in the fiscal fourth quarter to end-March from Rs2.36 billion reported a year earlier. Net sales rose to Rs31.48 billion from Rs27.47 billion.
That compared with a Reuters poll forecast of a net profit of Rs2.53 billion on net sales of Rs30.54 billion.
Operating Profit Margin (OPM), a key gauge of profitability, fell to 10.9% in the March quarter from 11.5%, it said.
“We cannot assume that we can hold margins at this level because of the tough market conditions,” Bharat Doshi, group chief financial officer, said at a conference.
Soaring oil and steel prices have hurt margins of auto makers and pushed annual inflation to nearly 8% demand for automobiles and consumer durables.
Mahindra recently pulled out of a manufacturing alliance with Renault and Nissan Motor, and is instead building a new plant to make 300,000 medium and heavy commercial vehicles for a venture with a unit of Navistar for trucks and buses.
With an aggressive capex plan of Rs75-80 billion over the next three years, the company is raising Rs7 billion from a placement of 3.7% stake with a Goldman Sachs arm.
It is also increasing its focus on the defence sector, with a planned venture with Italy’s Finmeccanica for underwater defence systems, and is developing mine-protected vehicles with British defence contractor BAE Systems.
With an aim to doubling domestic sales and quadrupling exports by 2010, it is focusing on markets in southeast Asia, Africa and Latin America, and has set up assembly units in Egypt and Brazil.
Shares in Mahindra were down 0.5% at Rs641.1 by 0920 GMT. They had slipped 19% in the March quarter, compared with a 20% fall in the auto sector index and a 23% drop in the Sensex.