Exceptional gain bumps up M&M's Q3 PAT

Revenues down 10% on sluggish volumes; tractor margins down 340 bps y-o-y at 14.2%

Good days seem to have eluded Mahindra & Mahindra (M&M) in the December 2014 quarter, with volumes of both utility vehicles and tractors continuing to decline. The company’s shares rose five per cent on Friday, as the net profit at Rs 967 crore was well ahead of the Street’s estimated Rs 660 crore. This was due to an exceptional gain of Rs 299 crore derived from the merger of Mahindra Engineering Services, a subsidiary of M&M, with Tech Mahindra.

Adjusting for this one-time gain, M&M’s net profit is down 33 per cent year-on-year (y-o-y) at Rs 667 crore. Bharat Gianani of Angel Broking says M&M’s December quarter numbers were in line with estimates both on the top line as well as on the profitability front, after adjusting for the exceptional gain of Rs 299 crore.

While tractor volumes fell 24 per cent y-o-y and automobile segment declined 11 per cent y-o-y in the December quarter, revenues fell 10 per cent to Rs 9,260 crore. Compared to the September quarter, M&M’s revenues grew one per cent thanks to higher realisations during the quarter. The company's consolidated operating margin during the quarter averaged at 11.7 per cent, down 330 basis points (bps) y-o-y owing to sluggish volumes. The stock surged on Friday, as analysts believe volumes are likely to recover in the auto and tractor segments.

Thanks to weak volumes, earnings before interest and taxes (Ebit) margin for the auto segment rose 40 bps sequentially to 8.3 per cent. The auto segment's margins are not comparable with last year due to a merger of another unit into the auto segment. The Ebit margin of the tractor segment fell even more sharply by 340 bps on a y-o-y basis and 110 bps sequentially to 14.2 per cent. However, realisation in the tractor segment grew four per cent sequentially and 11 per cent y-o-y, says Religare. In the auto segment, realisation grew two per cent sequentially.

The company has been losing market share in the utility vehicles segment, as it lacks a petrol variant in its portfolio. However, the company is planning to launch a slew of products in the next few months, which would help revive volumes. Utility vehicles account for 80 per cent of auto segment’s sales. The company’s market share has been dropping but is likely to improve in the coming quarters, claim analysts.