Mahindra & Mahindra (M&M), the country’s biggest tractor and utility vehicle manufacturer, on Monday reported a six per cent rise in net profit for the quarter ended March 31 at Rs 606 crore, as higher commodity costs dented margins.
Financial analysts tracking the company had expected the net profit for the period to be in the range of Rs 670-680 crore.
The company had reported a net profit of Rs 570 crore in the same quarter a year ago. Prices of raw materials rose more than expected and the company was not able to pass on the entire increase to the customer due to prevailing competition and the fear of hurting demand, said company officials.
Pawan Goenka, president (automotive sector), M&M, said, “The increase in commodity prices was even higher than what we had expected. The rise is higher than what was seen last year, perhaps two per cent high. We saw a bit of moderation (in raw material prices) in the last 3-4 weeks, but we do not see that going down further.”
The company sold 48,080 passenger vehicles during the reporting quarter, against 41,473 in the same quarter last year. The Mumbai-based company showed sequential drop in operating profit margins at 13.78 per cent during the reporting quarter as against 15.73 per cent reported in the previous quarter. It expects pressure on margins to continue. “With both input costs and interest rates rising, the current economic environment is quite clearly challenging,” it said in a statement.
Net income rose by 26.6 per cent to Rs 6,682 crore during the reporting quarter, compared to Rs 5,278 crore in the corresponding quarter a year earlier. Mahindra’s expenditure rose 32.5 per cent during the quarter.
The company also announced a capital expenditure plan of Rs 5,800 crore to be spent this year as well as the next two years. This announcement comes on the back of a cut in automotive sales forecast this year by industry body SIAM.
“The latest projections see 14-16 per cent growth in passenger vehicle sales as against 16-18 per cent predicted earlier for the industry. Utility vehicles are expected to grow by 12-14 per cent,” said Goenka.
Apart from sports utility vehicles, the company also sells the Verito sedan (formerly known as Logan) manufactured by it under licence from Renault.
Mahindra’s stock reacted negatively to the results and closed at Rs 660.60, down 5.34 per cent, on the Bombay Stock Exchange on Monday.
The company also plans to enter into a dialogue with the government for evaluating the possibilities of buying stakes in state-owned Scooters India. The Lucknow-based ailing company manufactures passenger three-wheelers under the brand Vikram.
“We have not received any details on Scooters India yet but we will enter into a dialogue with the government and then decide whether we should go after it or not. We still haven't taken a call on it yet," added Goenka.
