Mahindra and Mahindra: Lacklustre show

Despite good times for tractors, stiff competition in the utility vehicles segment and lower offtake due to the transition to GST dented the numbers of Mahindra and Mahindra (including MVML) for the quarter ended June 2017.

The company posted single digit growth of 5 per cent on the topline to ₹11,094 crore over the June 2016 quarter. Although the farm equipment segment did well to clock a 13 per cent volume growth during this period, volumes in the auto segment dropped by 3.8 per cent. The auto segment brings about 60 per cent of the company’s revenues.

The drop in volumes in the auto segment was led by lower demand for the company’s utility vehicles, three-wheelers and medium and heavy commercial vehicles. Sharp fall in exports to South Asian and African countries added to the poor volume show in the auto segment. Top-line was also impacted to the extent of ₹144 crore due to the compensation provided to dealers for lack of input tax credit on stocks held during the transition to GST.

The tepid show on the topline coupled with a marginal rise in raw material costs dented the operating margins. Operating margins came in at 13.1 per cent against 14.2 per cent a year ago.

Both auto and farm equipment segments witnessed shrinkage in margins. While other income and finance costs remained almost at the same levels as the year-ago period, taxes increased by 8 per cent. The lacklustre show at the operating level coupled with higher taxes saw net profit come about 12 per cent lower than the June 2016 quarter at ₹768 crore.

Outlook & pricing

Multiple launches from competitors and gaps in the company’s product portfolio has seen M&M’s market share in the UV space decline steadily from 47 per cent five years ago to about 30 per cent by end 2016-17. But there are triggers for a better performance in this segment this year.

In the next few months, lower indirect taxes under the GST regime will help. Total indirect tax incidence on utility vehicles which added up to 50-55 per cent earlier, has been brought down to 43 per cent.

The company has reduced prices of UVs by an average of 6.9 per cent from July 1. Besides, the revival in rural demand bodes well for models such as the Bolero, Scorpio and TUV300.

M&M is also sprucing up its product portfolio and will launch a new vehicle pitted against Innova and Ertiga in the current year and another UV based on the successful Ssangyong Tivoli platform next year.

Measures in the Budget to boost the rural economy, good kharif sowing and normal monsoon should help tractor sales sustain the momentum.

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