Mahindra & Mahindra (M&M) Ltd said profit after tax dropped 20% in the fourth quarter from ₹1,059 crore a year ago to ₹849 crore, driven by falling tractor sales and a sharp rise in costs.
“In Q4, we have done better than market estimates. Reason behind fall in profits is the high base from the corresponding quarter (Q4FY18), which was a great three-month period for us. We will ascribe the rise in costs during Q4FY19 to the new product launches, which are not at mature margins at the moment. It is also accentuated by other costs that are associated with the new launches. Passing the rise in costs to consumers becomes challenging under the given scenario when the market is passing through low demand sentiment. Secondly, the overall tractor industry has declined," V.S. Parthasarathy, group chief financial officer, M&M, said.
Net standalone revenue was ₹14,035 crore, up 5.5% year-on-year (y-o-y), and beat Bloomberg estimates of ₹13,343 crore. Revenue from automotive and farm segments stood at ₹10,442 crore (up 13% y-o-y) and ₹3,206 crore (down 14% y-o-y), respectively.
The combined Q4FY19 results of M&M and Mahindra Vehicle Manufacturers Ltd (MVML) showed net revenue of ₹13,808 crore, up 4.70% y-o-y. Its total comprehensive income after tax for the period stood at ₹962 crore, suggesting a net profit margin of 6.96%, as against ₹1,156 crore from the year-ago period, when the net profit margin stood at 8.76%.
The company sold 163,937 vehicles (both passenger and commercial), up 5% y-o-y, and 56,903 tractors, down 15% y-o-y, during the quarter.
M&M said overall tractor sales grew 20% y-o-y to 320,594 units during April-August and just 1.2% y-o-y at 466,710 units in the September-March period. Its market share in the domestic tractor segment declined from 42.9% in FY18 to 41.4% in FY19.
Pawan Goenka, managing director, M&M, said five key areas to watch out for in FY20 are: The policies of the new government, availability and cost of finance, monsoon, trade protectionism and sanctions, and the BS-VI transition. “We hope that the new government continues its push in infrastructure, agriculture and other sectors, we are expecting a 25 basis points rate cut to boost market demand and below-normal monsoon. Also, the biggest challenge would be to plan the inventory during the changing emission norms from BS-IV to BS-VI," he added.
M&M said it plans to invest ₹18,000 crore over the next three years, including ₹12,000 crore for capex and ₹6,000 crore in subsidiaries.
“We are not slowing down in making new investments across capex and new product development," said Goenka, who confirmed that there won’t be any major passenger vehicle launch in FY20 as the company is busy preparing the roll out plan for its BSVI compliant products. “We will start our new product launches in FY21," he added.
M&M is investing in expanding production capacity at its plant in Chakan as other manufacturing units including Nashik and Kandivali (Mumbai) are running at full capacity.
“There is no requirement of additional capacity on the tractor side. Our investments in new products over next three years is going to be more than what we had invested in the last 5-6 years," Goenka said.
On the electric vehicles front, the company plans to launch the e-KUV by end FY20 and an electric variant of the XUV300 (codenamed S201) in the next 18 months. “We are exploring the (Ford) Aspire car (from Ford alliance) to be made electric under the Mahindra umbrella," said Goenka.
He confirmed that the first model under the Mahindra-Ford alliance will be the C-SUV, which is codenamed 605. The launch timeline, however, remains undisclosed.