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Business News/ Companies / Company-results/  Mahindra profit up 29% to `938 crore on tractor demand
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Mahindra profit up 29% to `938 crore on tractor demand

Net sales rise 7% to `9,910 crore compared with `9,250 crore over the same period a year earlier

Strong demand for its tractors compensated for falling sales of Mahindra’s sport utility vehicles. Photo: Abhijit Bhatlekar/Mint (Abhijit Bhatlekar/Mint)Premium
Strong demand for its tractors compensated for falling sales of Mahindra’s sport utility vehicles. Photo: Abhijit Bhatlekar/Mint
(Abhijit Bhatlekar/Mint)

Mumbai: Mahindra and Mahindra Ltd’s June quarter net profit rose a better-than-expected 29% on strong tractor sales, thanks to a good monsoon.

Net profit at the utility vehicles (UV) and tractor market leader rose to 938 crore from 725.64 a year ago. Net sales rose to 10,607.27 crore from 9,936.50 crore. A Bloomberg poll of analysts had pegged profit at 860 crore.

The tractor performance offset utility vehicle sales dropping to 60,224 units from 61,500 a year ago. Demand
for tractors in rural areas saw sales rise 26.1% to 71,696
units.

Tractors accounted for more than half the profit and 39% of revenue, according to Surjit Singh Arora, an analyst at Prabhudas Lilladher Pvt. Ltd, who said the earnings were in line with his expectations.

Other income, from activities that aren’t the main business, also helped boost net income, Angel Broking Pvt. Ltd analyst Yaresh Kothari said in a note after the earnings.

“The bottomline benefited from higher other income at 164 crore (against 60 crore in 1QFY2013) aided by dividend income of 81 crore from the subsidiaries," the note said. “Lower tax rate on account of higher R&D spends also boosted the bottom-line performance during the quarter."

The expansion in tractor margins on the back of robust volume growth helped overall earnings, he said, adding that lower commodity prices aided margins.

Owing to intensifying competition in the UV space and the prolonged slowdown in the auto market, the tractor business will continue to be company’s mainstay in terms of the earnings.

“The good growth in the profits of the entity in the quarter is due to a very good volume performance by the farm equipment sector and tight control on expenses," the company said in a statement.

The company’s tractor plant is running at full capacity, Pawan Goenka, president, automotive and farm equipment, told reporters in Mumbai on Tuesday.

Mahindra expects tractor industry growth at 10-12% in the current fiscal and sees its own performance exceeding this.

The sale of UVs, a rapidly growing segment until earlier this year, took a hit after higher excise duty on them announced in the February budget.

Mahindra sports utility vehicles (SUVs) such as the Scorpio, Bolero and XUV 5OO saw sales slow after a 3% price
increase on account of the higher excise. Mahindra’s UV sales in April expanded just
2% to 20,748 units from a year ago, the slowest in many
years.

With newer models such as the Renault Duster and the Ford EcoSport besides the sluggish economy, Mahindra’s UV volumes and market share will continue to remain under pressure, Arora said.

With the company accounting for half of all UV sales, a record 29% drop in volume in July dragged down the overall market by 17.5% to 37,010 units, the biggest fall since 2009, according to the Society of Indian Automobile Manufacturers.

Consolidated gross revenue and other income expanded 9.5% to 19,356.0 crore from 17,670.8 crore the year earlier.

On account of a change in the status of Tech Mahindra Ltd from a joint venture to an associate effective 31 August, 2012, the revenue above includes Mahindra’s share of that company’s revenue. Consolidated profit after tax for the current June quarter is 11,64.6 crore compared with 1026.4 crore in the previous year.

The automobile industry, which has been facing a challenging time, shrank by 2% during the quarter, Mahindra said.

The company laid off about 1,000 contract workers during the quarter, said Goenka.

The stock closed at 874.90 on the Bombay Stock Exchange, up 1.7%. The Sensex was up 1.49% at 19,229 points.

Bloomberg contributed to this story.

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Published: 13 Aug 2013, 01:51 PM IST
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