Mahindra and Mahindra Ltd (M&M), along with unit Mahindra Vehicle Manufacturers Ltd, put up a strong show for the September quarter. Net revenue surged 28.6% to 9,252.6 crore from a year ago.

But investors must note that the 28.4% annual jump in net profit to 978.1 crore was fuelled by a 31% jump in other income to around 326 crore. The firm typically sees higher accretion to net profit through income from subsidiaries in the second quarter.

It, however, does not undermine the company’s operational performance. In spite of selling a smaller number of farm equipment—lower by 13% annually—which enjoy higher margins, the automotive firm sustained its profitability. Farm equipment sales have been hit since end-2011 and continue to be sluggish due to the delayed monsoon.

In fact, the Street has consistently downgraded growth in the tractor industry to a marginal 2% for fiscal 2013.

Price hikes in the last two quarters also helped shore up blended realizations. Net revenue soared by 26.8% to 9,252.6 crore for all products, including trucks and some utility vehicles. The stand-alone entity’s net revenue growth was even higher at around 33.1%.

Robust automotive sales helped absorb variable cost pressures on all fronts. Operating margin was a tad higher at 13.8% during the quarter. That said, the management does not expect any further cost increases during the second half of fiscal 2013.

On the other hand, analysts say strong demand for its new utility vehicle launches will continue to drive operating leverage, with hardly any downside risks in the medium term. In fact, the management highlighted the successful entry of its XUV in overseas markets such as Italy, Australia and Africa.

Mahindra’s stock jumped 3.6% to 857.6 after the earnings were announced.

But, though the stock has outperformed the benchmark Sensex for several quarters, it continues to underperform the auto index on BSE, perhaps because of sluggish tractor sales.

Its share in total vehicle sales has dropped from around 34% a year ago to 26%. Investors must watch for a turnaround in tractor sales, which, along with its robust automotive sales, could lift operating margins and valuation.

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