Weak tractor and UV sales could hurt the firm’s profits in the current year.
The sharp drop of 33 per cent in tractor volumes in November appears to have resulted in inventories piling up at Mahindra & Mahindra (M&M). In November, the company sold 5,051 tractors in the home market and according to reports, sales in December have been weak. Between April and November, tractor volumes were up just 2.2 per cent leading industry watchers to believe that the numbers for 2008-09 could be flat or even marginally lower.
A slowing economy, they point out could hurt sales of low-end tractors, that are used for transportation and infrastructure, impacting the overall performance. Moreover, M&M may lose some share to John Deere and other players, which are doing well in the mid and high ranges. Even if the monsoon next year is reasonably good, it’s unlikely sales will pick up significantly.
M&M has also sold smaller volumes for utility vehicles (UV) and three-wheelers in November when UV volumes slipped 41 per cent --- between April and November this year, volumes are up just 2 per cent. The Xylo is to be launched in mid-January but consumer sentiment remains weak and despite interest rates softening somewhat, business could be dull for a few more months.
Consolidated profits for M&M could now be lower in 2008-09 at around Rs 1,600 crore down from Rs 1,800 crore last year. That’s because revenues are expected to rise by just about 10 per cent over the Rs 23,790 crore recorded in 2007-08.
Moreover, higher raw material costs continue to dent the firm’s operating profit margins, which were down by over 200 basis points in the September 2008 quarter.The fall was driven primarily by a sharp 400 basis points fall in the margins for the automobile segment. Even if the raw material bill is smaller , however, a weak top line could keep operating margins from expanding.
