M&M misses Q3 forecast as input costs hit margins

Increased raw material costs and subdued tractor demand impacted the margins of India’s biggest sports utility vehicle maker, Mahindra & Mahindra (M&M), as it failed to meet Street expectations in net profit, at Rs 662 crore for the quarter ended December 31.

The company recorded a 9.9 per cent fall in net profit for the quarter, as against Rs 734 crore recorded in the same period a year earlier. However, a one- time exceptional gain of Rs 117 crore was recorded on sale of long-term investment in last year’s comparable quarter.

Pawan Goenka, president, automotive and farm equipment sectors, M&M, said, “The way material costs moved during the last quarter, we were not able to pass on 100 per cent of the hike to customers. Tractor sales have slowed and this is a surprise to us. The growth (in tractors) has almost become flat.”

Financial analysts predicted M&M’s net profit at Rs 695 crore for the quarter. Goenka added tractor demand was expected to remain sluggish for a few months and may rebound and close higher by 8-10 per cent for the industry.

Operating margins declined to 13.8 per cent during the quarter, as against 15.8 per cent recorded in the corresponding quarter. The chief financial officer stated, “Because of the one-time exceptional item appearing last year, the net profit is down. Otherwise, there is growth of 16 per cent in net profit.”

With robust demand for the new model, XUV500, ramp up production of trucks and a jump in exports, there was growth of 37 per cent in net sales at Rs 8,327 crore during the reporting quarter, as compared to Rs 6,074 crore in the same quarter last year. The company sold 51,702 units of utility vehicles, a growth of 23 per cent, with a market share of 57 per cent. Tractors under the brands ‘Mahindra’ and ‘Swaraj’ grew 12 per cent in the same quarter, selling 62,342 units locally.

Second phase bookings for the XUV500 crossed 25,000, after the company opened bookings for the SUV 10 days ago, across 19 cities. The company will carry out a lottery among customers who have booked the vehicle, as only 7,200 units will be made and delivered.

“We are ramping up capacity of the XUV500 right now. We have to complete deliveries of the vehicle by May. We should be able to ramp up the capacity to 4,000 units per month. Those who were not allotted a vehicle will get a full refund of their amount,” added Goenka.