Mahindra and Mahindra Ltd (M&M) – one of the largest vehicle manufacturers in the country – reported a 24% year on year decline in net profit to 1,354.8 crore, for the quarter ending 30 September, on the back of significant decline in sales of passenger vehicles and tractors, due to prevailing slowdown in the economy. In the corresponding quarter, the company reported a net profit of 1,778.75 crore.

The bottom line though could beat the Bloomberg estimate of 1,292 crore, as result of the lower taxes paid due to the reduction in corporate tax announced by the union government. The Mumbai-based company witnessed 20.6% decline in sales of automobiles to 119,570 units and the sales in the tractor or farm equipment segment fell by 8% to 71,820 units.

Consequently, the revenue during the quarter slipped by 14.5% to 10,935.1 crore as compared to 12,790.2 crore in the corresponding period. Revenue generated from the automobile segment declined significantly by 18.4%, while the same in the tractor business declined by 9.8%, during the period.

During the period, the operating profit or the Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA), declined by 16.7% to 1,540.8 crore, compared to 1,849.3 crore, in the corresponding fiscal and the operating margins contracted by 40 basis points to 14.1%.

Sales of passenger vehicles have remained subdued across the country over the last one year due to changing regulations, overall slowdown in the economy and stringent credit norms introduced by the banks to tackle the menace of rising bad loans. Most passenger vehicle manufacturers including M&M had to reduce wholesales of vehicles to reduce inventory at respective dealerships.

According to Pawan Goenka, managing director, Mahindra and Mahindra Ltd, sales of tractors have been better than previous quarter, while sales of automobiles declined more in second quarter compared to the preceding quarter. This is for the first time when the industry witnessed decline in sales during two consecutive quarters.

“October was a very good month, however, one need to see if that was a green shoot or reality and that is not well defined. Good thing is that the commodity prices have remained benign. Both in auto and tractor Mahindra has done better than the industry and our market share went up," added Goenka.

In the last three months Mahindra and Mahindra has gained market share on the back of its new compact sport utility vehicle, XUV 300.

“Looking ahead, we expect M&M to face tough business situation in near term on account of turbulence in BS-VI transition, competitive environment in domestic SUV space and slow down in tractor industry. We believe that new products would help arresting declining market share and maintain profitability," said analysts of Reliance Securities.

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