Mahindra & Mahindra (M&M) reported a better-than-expected 26% increase in its second quarter net profit to ₹1,779 crore even as the maker of utility vehicles and tractors witnessed margin contraction.
The financials include numbers of its commercial vehicle unit — Mahindra Vehicle Manufacturers Ltd. (MVML). Revenue for the quarter (for M&M and MVML) rose about 6% to ₹12,790.17 crore, helped by higher revenue from its automotive segment.
Tractor sales decline
During the quarter, total vehicle sales grew 9% to 1,41,163 units compared with 1,29,754 in the corresponding quarter of last year. However, tractor sales declined 5% to 73,012 units and its exports rose 14% to 13,377 units.
Pawan Goenka, managing director, M&M said, “The company will maintain its 12-14% volume growth guidance in the tractor industry for the ongoing financial year. The input costs have increased by 250 bps due to higher commodity prices and we were able to pass half of it to the customers and the rest, we had to absorb or mitigate by cost reduction.”
Aditya Bapat, analyst, IIFL Securities Ltd., told The Hindu , “M&M's performance is to be seen on two broad factors. Firstly, the automotive segment saw revenue growth of 9%, however, EBIT margin contracted 274 bps due to expenses related to launch of its utility vehicle Marazzo. “Secondly, the farm equipment segment comprising tractors, held on to a steady 20% EBIT margin level in Q2FY19. However, volume for this segment declined 5% due to a delayed festive season.
“Going ahead, we feel that success of new launches will be key to boost volumes and continuation of tractor growth will be key to margin growth,” Mr. Bapat added.
M&M shares on BSE closed down 2.62% at ₹770.40 in a flat Mumbai market on Wednesday, valuing the company at ₹95,775.6 crore.
“We are a AAA rated company with strong balance sheet as our debt equity ratio continues to be at zero,” said V S Parthasarathy, Group CFO, M&M.
