BackFor Mahindra, unabated drop in utility vehicle sales to remain a drag
Mahindra's utility vehicle sales in April dropped 15% year-on-year, and for sure, this is not a 'one-off'
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Clearly, Mahindra and Mahindra Ltd’s (M&M’s) utility vehicles (UVs) are losing steam in the marketplace.
In April, the company’s UV sales dropped by 15% year-on-year. For sure, this is not a “one-off". Since November, when auto sales were hit across the board due to demonetisation, M&M’s sales of UVs have been moving downhill, month after month.
Also, the sales decline in April came when the rest in the pack fared brilliantly. Toyota Kirloskar Motor Pvt. Ltd posted a 52% growth led by its high-end UV Fortuner. Likewise, Maruti Suzuki India Ltd’s UV sales jumped by a robust 28%, contributing significantly to the 20% growth in total passenger vehicle sales.
Evidently, competition is giving M&M a run for its money. Analysts’ concern is that the firm, which once ruled the roost in the UV market, has lost market share from a high 50% a couple of years ago to about 33% at present.
Will it ever regain lost mileage in the UV segment? Competition is only getting more aggressive with a slew of new launches consistently hitting the market to lure the demanding investors. M&M with its subdued approach has hardly impressed the Street with its few new launches.
This is not good news for the investor because UVs comprise nearly half the sales volume of the company’s auto division, which in turn accounts for two-thirds the total revenue. Weak performance of the auto division had dragged overall revenue and profit down in the December quarter. Even the margins of the auto segment contracted severely on weak sales.
Not surprisingly, the Street expects a tepid performance for the March quarter too, what with the apex court’s ban on BS-III vehicles fuelling the drop in sales. Meanwhile, M&M also offered discounts to clear its stock of vehicles. If at all, the robust farm equipment performance may give a leg-up to financials and support the stock, which has been underperforming benchmark indices for several quarters.
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