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| M&M net profit far better than expected |
| BS Reporter / Mumbai Oct 30, 2009, 00:58 IST |
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India’s biggest utility vehicle (UV) and tractor manufacturer, Mahindra & Mahindra, today posted its highest standalone quarterly net profit, at Rs 702.94 crore in the quarter ended September 30, surpassing expectations of most equity analysts tracking the company.
Better sales realisations from top performing brands like Xylo, Scorpio and Bolero in the UV space and the Swaraj brand in the tractor space helped the company report higher sales during the quarter.
The growth in net profit (after special adjustments) stands at 185 per cent over the net profit of Rs 246.7 crore posted by it in the corresponding quarter a year earlier. An exceptional profit of Rs 90 crore emerging from sales of shares of Mahindra Holidays and Resorts, part of the initial public offering, was also included in the bottom line.
Better availability of vehicle finance, positive impact of festive demand on the external front, effective cost reduction and better negotiations on raw material supplies on the internal front helped the company post healthy margins, stated company executives.
“We expected the net profit of M&M to be in the range of Rs 410-500 crore but it has well surpassed all our expectations. The growth in tractor volumes has picked up phenomenally,” said S Ramnath, director of research, IDFC SSKI.
M&M’s UV sales volume were up 44 per cent at 55,280 units during the quarter, against 38,462 units sold in the same period a year earlier. Tractor sales correspondingly grew by 32.4 per cent to 38,811 units, as compared to 29,305 units.
Auto sales constituted 59 per cent and the farm equipment sector 41 per cent of the company’s net revenues.
Bharat Doshi, executive director-finance, M&M, said: “Operating margins have improved to 18.24 per cent (from 5.91 per cent last year same period) for the company. Material costs, which constituted 70.6 per cent of revenue, have dropped to 64 per cent. However, there has been a steady tightening of commodity prices and we may have to look at a price increase later.”
The company clarified later that even though prices of sheet metal and tyres have risen in recent months, forcing the company to evaluate price hikes, it is most likely to absorb the increase than pass it on to the consumer, considering the current trend of robust demand.
However, the prices of tractors may see an upward revision of about five per cent, perhaps by the end of the financial year, if raw material prices continue an upward trend. The company had raised tractor prices in the final quarter of last year.
Anjani Kumar Choudhari, president - farm equipment sector, M&M, said: “Currently we are gaining an advantage of Rs 4,000 per tractor produced. We have also seen an increase of about 1-1.5 per cent in raw material prices. We may be able to contain costs due to our cost reduction efforts, but may also look at a 4-5 per cent in tractor price hike.”
The company also stated that it will look to raise about Rs 400 crore for the Mahindra Navistar joint venture over the next three to six months. The JV company will produce medium and heavy commercial vehicles, which will be above 3.5 tonnes. It has a ready capacity of 50,000 units per annum at Chakan in Pune and is preparing to roll out its first product in the final quarter of this year. M&M, meanwhile, will roll out its own product this quarter from the same plant, which has a total capacity of about 600,000 units.
Though there is no immediate requirement of any fund raising activity, the management stated it may also look to divest stake in some profit-making subsidiaries where it holds a majority, to generate capital. Besides, any urgent fund requirements can be met through internal accruals and short term debts, stated a senior executive.
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