Mahindra profit skids 4% as monsoon deficit, festive discounts take toll

Hit by a delayed and deficient monsoon and increased competition, tractor and utility vehicle market leader Mahindra & Mahindra on Friday reported a 4.2 per cent decline in stand-alone net profit for the quarter ended September 30.

The Mumbai-based company posted Rs 947 crore profit for the reporting quarter, below the Bloomberg consensus of Rs 961 crore. The company had reported a profit of Rs 989 crore during the same period last year.

High costs, including festive discounts, hit margins for the reporting quarter, which stood at 12 per cent as against 13.5 per cent, said company officials. Higher dividend from its subsidiaries, including from Tech Mahindra, helped push other income by 35 per cent.

"The CSR (corporate social responsibility) expense was increased, minimum wages were increased by the Maharashtra government, increase in depreciation, marketing spends on new launches and high discounts during the festive days were the reasons why there was a fall in profits," Pawan Goenka, executive director, Mahindra & Mahindra.

Total expenses increased to Rs 8,783 crore during the quarter, a rise of 10 per cent from Rs 7,981 crore.

Growth in tractor and utility vehicle sales remained flat during the quarter. The company clocked 47,906 units sales in utility vehicles this quarter as compared to 47,388 units sold in the same quarter last year. Total tractor sales stood at 141,560 as against 141,171 units.

Expenses for CSR was increased to 2 per cent and now charged on the profit before tax (PBT) as against 1 per cent charged on profit after tax (PAT). Further due to a new Maharashtra government notification, minimum wages were increased by 60-70 per cent. Therefore, wages of contract and support labourers was thus brought up to the new level. Most of M&M plants are based in Maharashtra.

A 12 per cent deficiency in rainfall, cyclone in Andhra Pradesh, hailstorm in Maharashtra and non-seasonal rains in other parts of the country have impacted tractor demand. "It would be difficult to reach the 5 per cent growth projected for the tractor industry but we will be able to give a more definite picture by the close of this month," added Goenka.

In the UV space, the company said it is expecting further pressure on market share with the launch of new products by the competition. M&M's absence in the compact UV space has put pressure on its market share.

"The Scorpio, XUV500, Bolero and Pickup make up 80 per cent of the volumes of the company. We do not see any major changes in demand for Xylo, Quanto, Verito, Vibe and Maxximo," added Goenka.

Net sales of the company increased to Rs 9,418 crore for the quarter, a growth of 7 per cent as against Rs 8,814 crore posted in the same quarter last year. The company said it was able to pass on the hike in material costs to its consumers in utility vehicles and tractor segments.