By Bloomberg

In the September quarter, the company’s net profit fell 3% from a year ago to 737.4 crore. Even if one ignored the impact of rupee depreciation, the adjusted net profit of 759 crore would have meant no growth from the previous year. That adjusted figure also fell short of the 776 crore consensus forecast of brokerages polled by Bloomberg. Secondly, if one were to also include the numbers of its 100% subsidiary, Mahindra Vehicle Manufacturers, which makes the Maxximo model, then net profit growth would be a weak 6%.

The key risks for M&M, as with other auto companies, are raw material costs and dipping volumes.

While commodity prices are easing, their impact on rising income statements come with a lag. Therefore, raw material costs could continue eating into profit well into the third quarter as well, despite price increases by M&M in August and September.

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*** Quarterly Performance (PDF)

Secondly, the company management has projected a cautious outlook for the rest of this fiscal year, citing the deteriorating macroeconomic scenario. However, brokerages are more optimistic about volume growth. With nine launches in fiscal 2011, and eight planned this fiscal, volumes might just continue to chug along nicely as seen in October. Some models such as the XUV500 have an order backlog of as much as four months. The tractor segment is also likely to do well with normal monsoon.

Will that be enough to sustain M&M stock’s outperformance is the big question. Ssangyong Motor Co. Ltd is likely to bleed due to rising costs. The outlook for other subsidiaries such as Tech Mahindra and Mahindra Finance, too, isn’t rosy. While investors did hammer the shares almost 6% on Monday, they will wait for consolidated numbers before the next round of buying or selling.

Graphics by Yogesh Kumar/Mint

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