Mahindra Q1 profit falls 20% on GST impact, but tractor sales rise

Mumbai: Mahindra and Mahindra Ltd on Friday posted a bigger-than-estimated 20% decline in June quarter net profit as passenger car sales slowed ahead of the transition to the goods and services tax (GST) in July, countering a jump in tractor sales that indicate a revival in rural demand.

The maker of Shaktimaan tractors and Scorpio utility vehicles (UVs) said profit fell to Rs765 crore in the three months, compared with Rs961 crore a year earlier. Profit would have been higher by Rs96 crore but for the impact of GST, it said.

Mahindra’s net sales increased 3.2% to Rs12,335.56 crore, boosted by a 12% jump in revenue from the farm equipment sector. Revenue from the automotive sector declined 2%. More than one out of every three rupees earned by the company came from the farm equipment sector.

Mahindra had been expected to post a profit of Rs850.90 crore on net sales of Rs11,265.90 crore, based on a Bloomberg poll of 16 analysts.

In the three months to June, Mahindra's passenger vehicle sales in the domestic market dropped 6% from a year ago to 55,785 units.

Sales of tractors advanced 13% to 81,178 units—an indication of rural demand looking up on the back of plentiful monsoon rain.

Two consecutive years of good rains and crop loan waivers in key states will push tractor sales to a record high in 2017-18, Crisil Research said in a 1 August note. Sales of tractors may touch a new peak of 650,000 units in 2017-18, about 12% higher than the 580,000 units sold in 2016-17, the ratings agency said.

Analysts expect the company’s margins to remain under pressure and the passenger vehicle business to underperform in the medium-term.

“None of the new launches by the company in the UV space have done well and there are hardly any new products in the pipeline” said Nitesh Sharma, an analyst at PhillipCapital .

During the quarter, Mahindra's share in the UV segment dropped to 27.92% from 31.62% a year ago, according to the Society of Indian Automobile Manufacturers.

Mahindra will now concentrate on driving its UV business, according to Pawan Goenka, the firm’s managing director.

Starting next month, the company will begin to launch new models and refreshes in the UV segment.

The electric vehicles portfolio, which is very small now, is likely to grow significantly as the company engages more intensely with cab aggregators and fleet operators for commercial applications, said Goenka.

Goenka forecasts the tractor market to expand 10-12% in the current fiscal year. He expects sales of passenger vehicles to grow at 10-12% and UVs at a faster rate of 13-15%.

“Going ahead, new launches in the utility vehicle and light commercial vehicle segment should revive volumes,” said Bharat Gianani, an analyst at the securities house Sharekhan Ltd, owned by BNP Paribas.

Mahindra's shares closed at Rs1,418.30 on the BSE, up 0.10%. The earnings were reported during trading hours. The benchmark Sensex closed at 32,325.41 points, up 0.27%.