Slowdown At Mahindra

But for the six months ended September 30, 1996, total turnover increased to Rs 1,428.62 crore, up 23.72 per cent. A 17 per cent growth in spare parts sales from Rs 53 crore to Rs 63 crore further cushioned the revenues.

Other income dipped marginally from Rs 38.79 crore to Rs 38.28 crore largely because of a drop in revenue from investments.

However, cost-saving measures and higher operational efficiencies in two core divisions automotives and tractors have resulted in higher operational profits. In fact, margins at the operational level sans other income have improved from 10.7 per cent to 10.8 per cent.

 

But a hike in interest costs to Rs 30.31 crore and a small increase in depreciation charges have eroded profitability. In spite of this, net profit at Rs 92.43 crore was up 25.24 per cent compared with Rs 73.80 crore registered previously.

A lower tax provision further cushioned the earnings growth. Company sources said good working capital management, lower inventories and smaller debtor cycles have played a role in improving the profitability.

A 2:3 bonus issue in February this year has led to an increased equity base. This has meant a lower EPS of Rs 9.08 compared with Rs 12.99 last year.

The launch of four upgraded vehicles with more powerful engines along with a rationalisation of excise in the Union Budget should now help the company counter the Sumo threat more successfully.

Another strategy is to relaunch the Armada (which is pitted directly against the Sumo) as a luxury vehicle with air-conditioning and power steering. Additionally, Mahindra intends to utilise the lower excise duty rule for vehicles with a gross weight of 2,700 kg by relaunching the Commander to compete against the Sumo.

Analysts said M&M should also enjoy the benefits of the rationalisation of the excise differential between smaller and larger tractors in the Union Budget. Further, better cash crop yields, good monsoon and an easing of restrictions on rural credit should bolster tractor sales in the second half.

The companys business process re-engineering (BPR) programme adopted for ironing out the problems of low productivity, wastage and long process lead times has also excited analysts. Company sources said besides giving M&M a leaner look, the BPR should substantially improve operating margins which, in turn, would drive up profits.