M&M: Op­ti­mism re­turns as auto and farm seg­ments tango

Mint ST - - MARK TO MARKET - Vat­sala Ka­mat feed­back@livemint.com Shares of Mahin­dra and Mahin­dra shot up as the Septem­ber quar­ter per­for­mance surged past es­ti­mates. M&M BSE Auto in­dex Sen­sex

Af­ter a con­sid­er­ably long spell of de­cel­er­a­tion, Mahin­dra and Mahin­dra Ltd (M&M) staged a strong come­back in the Septem­ber quar­ter. The trac­tor and util­ity ve­hi­cle (UV) maker pulled off a grat­i­fy­ing op­er­at­ing per­for­mance through su­pe­rior prod­uct mix, price hikes and strong sales in both its farm equip­ment and au­to­mo­tive di­vi­sions.

The beat in mar­gins, when com­pared to what bro­ker­age firms had es­ti­mated, was sig­nif­i­cant. The com­bined en­tity— M&M and Mahin­dra Ve­hi­cle Man­u­fac­tur­ers Ltd—clocked a 16% op­er­at­ing mar­gin, up nearly 200 ba­sis points from a year back. Fu­elling this was a strong 31% year-on-year jump in farm equip­ment sales and a 9% rise in au­to­mo­tive sales.

While the jump in sales is not sur­pris­ing given the two con­sec­u­tive years of good mon­soon and the con­se­quent im­prove­ment in ru­ral sen­ti­ment, UV sales rose on the back of new launches and wan­ing ef­fect of de­mon­e­ti­za­tion.

Ex­plain­ing the auto seg­ment re­cov­ery, a re­sults re­view note by JM Fi­nan­cial Ser­vices Ltd said, “Con­tin­ued trac­tion in ur­ban sales, strong fes­tive de­mand and re­freshed ver­sions of the KUV100 and TUV300 aided re­cov­ery in the com­pact util­ity ve­hi­cles port­fo­lio, even as main­stay mod­els such as Bolero, Scorpio and XUV500 re­mained on a strong foot­ing.”

Fur­ther, the com­pany cashed in on buoy­ant de­mand and hiked prices by 1.7% and 1.5% in farm equip­ment and au­to­mo­tive di­vi­sions, re­spec­tively, that helped pass on raw ma­te­rial cost in­creases.

As a re­sult, profit (be­fore in­ter­est and tax) mar­gins for the farm equip­ment and auto di­vi­sions ex­panded from the year-ago pe­riod. This com­pared very favourably with the drag in prof­itabil­ity in the June quar­ter thanks to the woes of BS-IV emis­sion norms and de­mon­e­ti­za­tion ef­fects.

In fact, M&M’S auto seg­ment was among the worst hit dur­ing the last cou­ple of quar­ters as a re­sult of the reg­u­la­tory changes. Ris­ing du­ties on diesel ve­hi­cles, higher tax im­pact to cus­tomers un­der the goods and ser­vices tax and the time taken to cope with new BS-IV emis­sion norms, all pulled down per­for­mance.

Nat­u­rally, in­vestors cheered the come­back in rev­enue growth and profit mar­gins in the quar­ter un­der con­sid­er­a­tion. Even the 22% year-on-year jump in net profit was higher than fore­casts. M&M’S shares rose by 2.6% in the last two trad­ing ses­sions in spite of sen­ti­ment be­ing dull on the Street.

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