Mahindra and Mahindra profit jumps 25 pct; here is the reason why

Mahindra and Mahindra (M&M) on Friday reported a 25% year-on-year rise in its standalone net profit to Rs 1,332 crore for the three months ended September 30, 2017. The net profit was higher than analysts’ estimates, and was driven by impressive tractor sales during the quarter. Net sales for the country’s largest tractor manufacturer surged 14% to Rs 12,182.07 crore while the operating margin expanded. The company reported EBITDA of Rs 1,729.26 crore, up 45.5%, while the EBITDA margin was up by 310 basis points to 14.2%. Pawan Goenka, managing director, told analysts in a conference call, “Margins have risen due to a favourable model mix in the quarter and because we have passed on commodity price increases to customers by way of increase in prices. We also cleared out all the inventory with a BS III (Bharat Stage 3) or GST impact out in the last quarter.”

The company saw a sharp increase in domestic vehicles volumes which grew 9% to 1.38 lakh, led by a smart increase in the utility vehicles segment with 61,516 units. Volumes in the farm equipment segment, which is mainly tractors, surged by more than 31% to 80,967 units. Tractor sales rose due to almost-normal monsoons, which helped boos the rural sentiment, the company said. Going ahead, normal monsoons and increase in the minimum support prices for kharif and rabi crops are likely to maintain a positive rural sentiment.

Speaking at an earnings conference earlier, Goenka had said, “We witnessed healthy sales for tractors but saw a moderate performance from the auto segment in the quarter. Also, the environment in the urban areas has been conducive to growth. Rural, too, has started to improve. In the quarter, we saw a 24% growth in retail sales in the rural areas.”

Barring the LCV segment of more than 3.5 tonne and three-wheelers, all other vehicles categories saw increase in volumes during the quarter. The sharpest fall came in three-wheelers segment which was lower by nearly 12% to 13,611 units. Volumes for LCV greater than 3.5 tonne were down 1.5% to 1,540 units. Goenka said there is no sign of subdued demand. “For the rest of the year, we see no headwinds and our volumes growth is likely to continue. We also have robust product launch line-up in the pipeline in the farm equipment space. By the end of the year, we will also launch a new SUV codenamed the U321.”

On the electric vehicle business, Goenka said, “Prices for EVs are too high for personal use, but they are appropriate for commercial use. We see EVs being a significant part of our financials in the next 2-3 years.”

In Q2FY18, the company sold the highest number of Scorpio vehicles since its launch in September 2017 and has strengthened the UV portfolio.

The domestic auto industry reported a 13.3% growth, driven by a normal monsoon, overall positive sentiment across urban and rural areas and the festive season. The passenger vehicle segment of the industry grew 13.4%, the UV segment grew 27% and the MHCV goods segment grew 30.6%. The board of directors of M&M recommended issue of bonus shares in the ratio of 1:1 i.e. one bonus share of Rs 5 each for every one fully paid-up share of Rs 5 each, subject to necessary approvals. The scrip on Friday closed up 2.34% at Rs 1,393.40 on the BSE.