M&M December quarter net up 7%

Net profit at Mahindra & Mahindra and Mahindra Vehicle Manufacturers (MVML) rose 7 per cent in the December quarter over the year-ago period, the company said on Friday. The earnings were boosted by a robust growth in tractors even as higher raw material expenses and high discounts in cars and lower commercial vehicles sales weighed on its margins. The makers of XUV 5OO and Arjun tractors reported a net profit of ~12,892 crore during Q3 over ~11,491 crore a year ago.

“It was a challenging quarter for tractors, cars and commercial vehicles as several negatives came together,” said Pawan Goenka, managing director at M&M. He attributed it to unfavourable end to the monsoons, which led to a muted festive season. A lower off-take at the dealerships during the festive months left them with unsold stocks, prompting manufacturers to offer steep discounts.

Led by an increase in raw material expenses and the company’s inability to pass it on to buyers, M&M's operating margins contracted to 13.2 per cent in Q3 from 14.7 per cent in the year-ago quarter. While a 40 basis point impact on the margins was due to higher discounts on cars, the remaining was owing to higher raw material prices, said Goenka. Average discounts inched up 6-8 per cent over the same quarter last year.

In Q3 the firm sold 133,508 units including cars, commercial vehicles, and three-wheelers, an increase of 10 per cent over the last year. During the quarter, M&M’s tractor sales grew at 13.2 per cent slower than the industry. Goenka expects the impact of axle norms to wear off in the coming months and truck sales to bounce back by April.