Mumbai: Mahindra and Mahindra Ltd beat market expectations with a 24% rise in standalone quarterly net profit mainly because of a sharp rise in other income and higher sales. Competitive pressures and higher marketing expenses, especially for its latest Marazzo multi-purpose vehicle, however, hit profit margins in the quarter ended 30 September while the company trimmed its volume growth guidance for this financial year.

Profit rose to 1,649.46 crore last quarter from 1,331.57 crore a year earlier, Mahindra said on Wednesday. The figure surpassed the 1,293.5 crore profit forecast in a Bloomberg poll of 14 analysts.

Net sales grew at a modest 6.6% to 12,988.57 crore from 12,183.65 crore.

Other income surged 53% to 847.75 because of higher dividend income from subsidiaries.

Mahindra’s managing director Pawan Goenka said unfavourable macroeconomic factors had a “moderating effect" on the automobile industry in the September quarter as opposed to the June quarter.

A high base in the same quarter last year, a shift in the festive season this year to November, compared with October last year, and weak consumer sentiment because high fuel prices and certain regulatory changes hit overall demand, Goenka said.

Revenue from the auto sector, which comprises 2 out of every 3 earned by Mahindra, rose 8.75% to 8,638.69 crore. In the farm equipment segment, revenue rose a marginal 1.77% to 4,028.07 crore. Revenues from other segments, such as hospitality and financial services, jumped 13% to 405.2 crore.

Mahindra’s earnings before interest, tax, depreciation and amortization (Ebitda) margin, at the consolidated level fell 1.5 percentage points to 14.5% from 16% a year ago.

Increased cost pressures and expenses towards launching the Marazzo in September led to the fall in margins, said V.S. Parthasarathy, Mahindra’s group chief financial officer.

Margins were marginally lower than estimates also because of pressures in the auto segment, said Bharat Gianani, an analyst at Sharekhan Ltd in a note.

Higher discounting also impacted margins in the auto business, he said. Farm equipment margins matched estimates, he said. Goenka lowered Mahindra’s sales growth forecast for tractors and automobiles this fiscal year. He expects tractors to clock a growth between 12-14% “with a bias towards 12%" instead of the stated 14% at the beginning of the fiscal. For the passenger vehicle industry, he pegged growth at 7-8% instead of above 10% previously.

While commodity prices rose about 2.5 percentage points for both auto and farm equipment divisions last quarter, Mahindra has passed only half of the increase to customers so far, Goenka said. A decision has yet to be taken on raising prices in the future, he said. Mahindra’s domestic automobile sales rose 8.8% in the quarter to 60,867 units, off a low base.

However, utility vehicle sales fell 9.5% to 55,656 units because of a broader slowdown in passenger vehicle demand. Tractor sales fell 5.2% from a year earlier to 73,012 units last quarter.

There is increased uncertainty in the mind of buyers because of a rise in car prices caused by higher commodity prices and regulatory changes such as in insurance norms and a possible ban on diesel vehicles in New Delhi to address air pollution woes, Goenka said.

He expects headwinds in the auto business to continue for at least another quarter.

For the first time, rural areas had a greater share in total auto sales than urban areas at 51% last quarter. This may offer some respite to Mahindra to offset competitive intensity in the urban areas with improvement in rural sentiments due to progress on rabi crop sowing and increase in kharif output.

Shares of Mahindra closed at 770.4 apiece on the BSE, down 2.62%, while the benchmark Sensex closed almost flat at 35,141.99 points. The results were announced during market hours.

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