Mahindra’s auto segment drags down operating profit in fourth quarter
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Mahindra and Mahindra Ltd’s (M&M’s) auto segment lost ground in the March quarter, but fortunately, the pain was partially alleviated by the robust show staged by the farm equipment segment (FES).
The company’s consolidated revenue along with Mahindra Vehicle Manufacturers Ltd (MVML) rose by a moderate 4.3% year-on-year to Rs10,612 crore. Although the auto segment accounts for nearly two-thirds of the total revenue, it continued to fail investors. Sales volumes receded by 1.8%. Lack of new models in utility vehicles (UVs), especially in the compact segment, has been the bane of this auto maker for many quarters. This is increasingly unfathomable for investors as M&M had a head start in UVs over competitors when they were launched in the market.
In contrast, FES’s sales jumped by 16%. A decent rabi crop propelled sales, which in turn pushed up revenue by 18.3%.
Unfortunately, the firm’s operating profit contracted by 4.4% year-on-year, due to weak auto sales and discounts offered on vehicles that were not compliant with the recent BS-IV emission norms. Consequently, the operating margin too dipped by 100 basis points to 11.7%. Again, it was the auto segment that dragged profitability downhill, although it was partially alleviated by a 170 basis points expansion in margins churned out by FES.
The 26.3% year-on-year growth in the firm’s reported net profit (including MVML) was fuelled by a huge 207% jump in other income. It also includes an exceptional item of Rs94 crore, which accrued during the quarter from sale of a long-term investment.
Importantly, the scenario of weak auto sales is unlikely to be a thing of the past as the company has not announced any new launches to match the products of its competitors in the UV segment. This would continue to be a cause for concern on the Street. The only hope for the near term is that forecast of a good monsoon could propel sales of FES to new highs, which in turn could support profit margins.
Little wonder therefore that the M&M stock remains an underperformer when compared to the benchmark indices.