M&M Q4 results: Impairment charge shrinks net profit to Rs 162 crore

Revenues beat estimates, company chalks out a Rs 17K crore plan to aid growth

A robust growth in volumes and realisations aided the March quarter performance of Mahindra and Mahindra (M&M). The company, including its manufacturing arm Mahindra Vehicle Manufacturing, posted a net profit of Rs 162.5 crore after exceptional items as against a loss of Rs 3,255 crore in the year ago quarter, the company said on Friday. The company took a Rs 840 crore impairment charge in the quarter which coupled with lower other income dented the bottomline. Adjusted for the same net profit was marginally below street estimates. 

Net revenue at the combined entity rose 48 per cent to Rs 13,338 as against Rs 9,005 crore in the corresponding period. This was above street estimates which had pegged it just under Rs 13,000 crore. While volume growth was largely driven by tractor sales which were up 58 per cent over the year ago quarter, realisations for both segments were better than expected.

Higher raw material costs and other expenses dented margins which at 13.2 per cent were 40 basis points lower than the year ago quarter and missed the street estimates which had pegged it at 14 per cent.  

The maker of Scorpio and Bolero brands has announced a dividend of 175 per cent of face value (Rs 8.75 per share) for FY21, which is 3.7 times its FY20 dividend. This is the highest ever in the history of M&M, the company said.

Anish Shah, Managing Director and CEO, Mahindra said that the company is unlikely to see any further impairment in the forthcoming quarters. The tractor market leader plans to pump in Rs 17,000 crore in capital expenditure as well as investments over the next three years as it seeks to strengthen the core utility vehicles segment and consolidate its position in the tractor segment. Of the aforementioned sum, Rs 12,000 crore would be deployed in capital expenditure and Rs 5,000 crore for investment.  

Shah said the capital allocation actions have started showing results. The exceptional Items (EI) loss in Q4F21 reduced from Rs 3,578 crores to Rs 840 crores year-on-year. 

With impairments behind it and expectations of growth led by new model launches, the company is looking at improving its earnings growth and return ratios. It is seeking to deliver a 18 per cent return on equity and a 15-20 per cent net profit growth by FY25. 

Apart from the chip shortage triggered by factors including pandemic-driven supply-chain disruptions, the auto firms in India are under pressure from a severe second wave of COVID-19 infections that have led to a fresh round of lockdowns. But Mahindra said it expected demand to rebound in June and July as states came out of lockdowns.

"We are ramping up production and we believe there will be a strong demand rebound as we get out of lockdowns between June-July," Executive Director Rajesh Jejurikar said, adding that the auto sector could take a month or two longer than the tractor segment.

In a bid to make a strong comeback in the SUV segment where it has been ceding ground to rivals, M&M plans to launch nine new models by 2026, Rajesh Jejurikar, executive director automotive and farm equipment sectors, M&M said in his presentation.  Of these, the new Scorpio and XUV700 will be launched over the next six months. “This will help us in some market share gains,” said Jejurikar, pointing out that the semi conductor shortage, which continues to a be a issue has prevented the company from launching some models.” 

Even as rural India reels under the impact of Covid 19, M&M doesn’t see it derailing the tractor sales. The situation has improved in the last one week and the company expects tractor sales to recover from June onwards.  His optimism also stems from the forecast of a normal monsoon, healthy cash levels and government spending in rural areas.