Mahindra & Mahindra net up 1%, beats estimates

Helped by a gain from offloading control of a subsidiary company, utility and tractor vehicle market leader Mahindra & Mahindra (M&M) on Friday posted a one per cent growth in its net profit for the quarter ended December.

The stand-alone net profit for the quarter stood at Rs 942 crore against Rs 934 crore posted in the same quarter last year. However, nearly Rs 300 crore, which was part of the exceptional item list, arose from the shares in Tech Mahindra that M&M received as a result of the merger of Mahindra Engineering Services, a subsidiary of M&M, with the information technology (IT) company.

Without the exceptional item, the M&M net profit marked a fall of 27 per cent to Rs 667 crore compared with Rs 914 crore posted in the same quarter last year. That, however, exceeded Bloomberg's estimates of Rs 660 crore.

Poor demand for tractors, an equally subdued demand for its bread-and-butter utility vehicles and a fall in exports meant contraction on the margin front. In fact, tractor sales in the sector for the quarter were at their worst since 2005, an executive of the company said.

Pawan Goenka, executive director, said, "There is general optimism in the sector, which is a positive for market sentiments. But the rural income from farm output has come under pressure due to a fall in the kharif crop output. On the automotive side, we did not have any launches during the quarter and sales have been generally subdued".

M&M's utility vehicle volumes during the period fell eight per cent to 49,724 units against 54,164 units sold a year ago. Market share, as a result, fell to 37 per cent during the quarter against 38 per cent a year ago.

Tractors marked a sharper fall at 59,856 units, a dip of 22 per cent compared with 76,362 units a year ago. The tractor segment's market share declined to 39.6 per cent this quarter against 42 per cent a year ago.

Earnings before interest, taxes, depreciation, and amortisation margin declined to 11.7 per cent in the quarter against 14 per cent a year ago.

The net sales exceeded expectations during the quarter. These were Rs 9,466 crore, a decline of nine per cent compared with Rs 10,405 crore posted a year ago. Bloomberg estimated it to be Rs 9,355 crore.

"At the start of the year, we had expected the tractor sector to grow between eight and 10 per cent but now we expect it to close between negative eight and 10 per cent," added Goenka.

Income from farm equipment generates 37 per cent of the total income for M&M.

Though market for utility vehicles is expected to rebound in this quarter itself, the company is not hoping for a turnaround in tractor demand at least before the onset of the monsoon this year. Optimism on the UV front is pegged on new launches which will begin in the next few months.

"We will have one new product, one new variant and one new facelift launched every quarter this calendar year. Two of the three new products will be a passenger vehicle and the other will be a commercial vehicle. With new launches we hope to stabilize market share at 40 per cent in the UV segment", added Goenka.

Goenka also announced a larger participation of the African region in global expansion of M&M. The company is exploring setting up an assembly or production unit in Africa, Turkey and Brazil. In Africa the company will have a legal entity which will oversee operations of tractors, farm equipment, automotive, two-wheeler and gensets.