Strong SUV sales bump up M&M's Q2 net by 46% YoY to Rs 2,090 crore

Revenue during the period rose 57% to Rs 20,839 crore from Rs 13,314 crore

Mahindra & Mahindra (M&M) reported better-than-expected performance for the quarter ended September 30. Robust sales of its SUVs and a good showing by the farm equipment vertical bumped up its standalone net profit (after exceptional items) by 46 per cent year-on-year (YoY). The auto and farm equipment and automobile businesses boosted the consolidated net profit too, pushing it up by 44 per cent.

Net profit at the ScorpioN and XUV700 maker rose to Rs 2,090 crore in the three months to September, against Rs 1,433 crore a year ago; revenue during the period increased 57 per cent to Rs 20,839 crore, from Rs 13,314 crore. The earnings were ahead of Street expectations. A Bloomberg poll of 16 brokerages had estimated net profit at Rs 2041.80 crore, on a revenue of Rs 20,423.70 crore.

“Beyond the current quarter, our value unlocking process continues with the deals announced in the quarter gone by,” said Anish Shah, group managing director and CEO at M&M during the post-earnings call with reporters. He was alluding to the investment of Ontario Teachers in Susten — the group’s renewable energy arm and Mahindra Lifespace Developers’ joint venture with Actis. "This is part of the larger group strategy of creating “growth gems and value creation”. 

Consolidated net profit also rose YoY to Rs 2,773 crore from Rs1929 crore, while revenue increased 39 per cent to Rs 29,870 crore YoY.

As part of the larger restructuring exercise undertaken by the company two years ago, M&M has been exiting or ceding controlling stake in underperforming businesses. In a late evening notification to the exchanges on Thursday, it said it would cede 80 per cent control to a German PE firm in Peugeot Motorcycle. Shah said even as Mahindra will stay invested in the firm, it won’t put in money any further. “The exercise of reviewing underperforming subsidiaries is now complete,” said Shah.

M&M said Q2 was the highest quarterly revenue for the standalone and consolidated entity. “Auto is driving a big part of the overall performance,” said Shah. During the quarter, the auto business contributed 51 per cent to the consolidated revenue, up from 38 per cent in the year-ago quarter. 

Total vehicle volumes for the Mumbai-headquartered firm rose 75 per cent year-on-year to 174,098 units; it had open bookings for more than 260,000 SUVs. Mahindra’s farm equipment vertical saw the highest second-quarter volume, while the auto segment achieved the highest-ever quarterly volume. While sales of SUV advanced at a fast clip increasing 85.6 per cent to 174,000 units, the figure for pick-ups grew 86.4 per cent YoY to 49,000 units.

To meet the incremental demand, M&M is looking to ramp up production capacity at its plants for SUVs, said Rajesh Jejurikar, executive director, auto and farm equipment segments at the firm. The ramp-up will be done in a phased manner: By the end of the fourth quarter of FY23, it plans to increase capacity to 39,000 units, from 29,000 units in Q4 FY22. This shall go up further to 49,000 units at the end of the fourth quarter, he said in his presentation. Aided by the operating leverage, cost-saving initiatives and higher realisations, margins at both farm equipment and auto businesses increased 40 basis points to 16.4 per cent and 6.1 per cent, respectively. 

In Q3FY22, the company forecasted a 3 per cent upside in the auto business over the medium term, driven by the end of introductory prices for the Thar and XUV700, structured cost reduction programme, and better operating leverage, Jejurikar said in his presentation.
 

“Strong set of numbers from M&M. Outperformance was seen on the top line as both auto and farm equipment segments performed robustly. The margin at 12 per cent was in line with expectations. Auto, as well as FES (farm equipment) margins grew on a QoQ basis. At the bottom line, higher other income and good operational performance led to better-than-expected growth. Remain BUY,” said Ashwin Patil, senior research analyst, LKP Securities.