Mahindra and Mahindra
Like the two wheeler majors, high interest rate, strengthening of indian rupee and high input cost has bitten scorpio maker Mahindra and Mahindra(M&M). Mahindra posted a 6.36 per cent decline in net profit of Rs 191.17 crore for the first quarter against Rs 204.17 crore last year. Mahindra’s operating margin, a key gauge of profitability, fell to 10.6 percent from 11.3 percent a year earlier. Mahindra’s sales rose to Rs2613 crore rupees from Rs2236 crores.
lags behind the expectation:
*missed to meet the Reuters poll forecast of a net profit of Rs209 crore on sales of Rs2544 crores.
*missed the Rs211 crore median profit estimate in a Bloomberg survey of 15 analysts
good show in automotive segment:
Mahindra reported an increase of 37 per cent in sales growth of vehicles (excluding tractors) during the quarter, selling 46,356 unit.Besides Logan, the all-new Scorpio range and the Bolero also helped the automotive sectors post positive results. The UV segment grew by 23 per cent during the quarter. Automotive segment, which includes utility vehicle (UV), commercial vehicles and passenger cars, contributed Rs 1,504 crore towards sales of the company, a growth of 21 per cent over Rs 1,243 crore last year. But since tractors are more profitable than SUVs when its sales fall Mahindra’s margins are affected.
dip in tractor sales:
Sales of tractors fell by 4 per cent to 75,340 units during the quarter. The farm equipment segment, which includes tractors, tractor engines and other parts, recorded a growth of 9.72 per cent to Rs 1,038 crore for the quarter compared with Rs 946 crore reported during the same period last year. M&M is the market leader in the tractor segment with over 43 per cent market share. High interest rate has slowdown the demand for Mahindra’s Arjun and Shaan tractors(all of which are bought on credit). Mahindra’s tractor sales fell to 27,291 in the past quarter, from 27,358 a year earlier.Other income also fell to Rs31.6 crore in the quarter from RS45.4 crores a year earlier as it received less in dividends from its units,
Word from M&M on dip and its guidance:
Mahindra’s spending on raw materials, its biggest expense, rose 19 percent in the last quarter to Rs1798 crores, it said in a statement. Labor costs rose 16 percent.
The strengthening rupee and the consequent lower export realisation affected the profit growth during the quarter ..however, the outlook for the rest of the year remains positive,” Mahindra said in a statement.Mahindra also said that it expects tractor sales to grow as much as 8 percent in the year that started April.
M&M stock movement:
Mahindra’s stock has fallen 16 percent this year, compared with the 11 percent gain in the benchmark Sensitive Index.M&M shares fell 7.3 percent during the April-June quarter, trailing a 2.7 percent loss for the Auto index. Mahindra share trade at 19.5 times forecast earnings, compared to 13.65 times for top vehicle maker Tata Motors Ltd. Shares of Mahindra fell 3 percent to 752.55 rupees on the Bombay Stock Exchange on 30th july after falling as much as 4.8 percent in earlier trade.
Mahindra’s investment plans and strategies:
M&M has proposed to spend Rs 6,400 crore in the next three years. The amount will be spent on expansion of capacities and research and development and product development. Mahindra is developing an automatic transmission for its scorpio to facilitate its foray into US market(where margins are higher). Mahindra is also developing a hydrigen powered scorpio regarding the same. Mahindra aims to quadruple exports and double domestic sales by 2010, with four new platforms and 10 new product launches.On the domestic front Mahindra will roll out 2.2L Scorpio eagle in this year. Mahindra also plans to rival Tata motors by making trucks and buses with a unit of Navistar Inc. Mahindra is investing around 2000crore rupees for a manufacturing plant in chennai in alliance with Renault – Nissan. But Mahindra refused to participate in Renault’s low cost project citing poor margins.Mahindra is reported to be bidding for Ford Motor’s premium Jaguar and Land Rover brands.