OPEN APP
Home >Markets >Mark To Market >Most vehicle makers drew a blank in April; M&M scored with some tractor sales

Most vehicle makers drew a blank in April; M&M scored with some tractor sales

The uncertainty over the magnitude of covid-19 impact on auto sales, BS-6 transition costs, stiff competition in urban areas and the resultant marketing costs may drag auto segment profitability materially in the coming quarters. (ANI)Premium
The uncertainty over the magnitude of covid-19 impact on auto sales, BS-6 transition costs, stiff competition in urban areas and the resultant marketing costs may drag auto segment profitability materially in the coming quarters. (ANI)

  • FY21 sales could grow 5-7% in the farm equipment segment, partly offsetting a double-digit fall in auto sales
  • Mahindra and Mahindra Ltd (M&M) managed to sell 4,716 farm equipment vehicles in the domestic markets

Auto sales came to a standstill for most companies in April, except for tractor manufacturers. While all car companies, including industry leader Maruti Suzuki India Ltd, reported zero sales for April, Mahindra and Mahindra Ltd (M&M) managed to sell 4,716 farm equipment vehicles in the domestic market.

This is because the lockdown was partially lifted for some industries on 20 April. Note that a year ago, M&M had sold 13,418 farm equipment vehicles, which translates into daily sales of 433 vehicles.

Interestingly, the company has managed the same daily rate of sales when the lockdown was partially lifted on 20 April.

“Several positive factors such as a good rabi crop output, opening of procurement centres by the government, indication of good crop prices, reservoir levels, etc., augur well for tractor demand," said Hemant Sikka, president of the farm equipment segment at M&M.

Farming profits.
View Full Image
Farming profits.

Analysts are obviously putting their bets on this segment driving FY21 sales. According to some, sales could grow 5-7% in the farm equipment segment, partly offsetting a double-digit decline in auto sales.

M&M’s profitability in this segment scores over the auto segment. In Q3 FY20, the segment’s Ebit (earnings before interest and tax) margin was 19.4%, while that of the auto segment was 7.3%. In fact, strong performance in the farm equipment segment had translated into an expansion in overall operating profit during the quarter. This is in spite of slowing auto sales and a drop in revenues.

That said, the uncertainty over the magnitude of the impact of covid-19 on auto sales, BS-VI transition costs, stiff competition in urban areas and the resultant marketing costs may drag auto segment profitability materially in the coming quarters.

Also, investors have been worried about widening losses at M&M’s subsidiaries (especially SsangYong Motor Co. of Korea) and the consequent need for more investments. This explains why even after the 28% rise in M&M’s stock price since the last week of March, it is still down 43% from the year-ago level, compared to the 29% drop in the Nifty Auto index.

“It has invested 6,000 crore over the last five years (in various ventures) but many of these investments are either in early stages or incurring losses, thus requiring frequent equity support," said a report by Systematix Shares and Stocks (India) Ltd.

The report added that M&M’s rejection of fresh equity infusion into SsangYong at this juncture comes as a relief.

Coming back to the farm equipment segment, the company says that growth rate will depend on how quickly things normalize, both in terms of its own operations and those of non-banking financial companies.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Close
×
Edit Profile
My ReadsRedeem a Gift CardLogout