Covid-19 impact: M&M Q1 profit skids 97% as auto sales hit speed bump

Farm equipment's robust performance cushions the impact

Mahindra & Mahindra (M&M) saw a steep fall in first quarter earnings, with the lockdown proving a speed breaker for auto sales.

However, a strong showing in the farm equipment sector helped offset the impact of lower auto earnings, thereby saving saved the company from slipping into red.

Profit before tax (PBT) of the Mumbai-headquartered firm contracted 97 per cent to Rs 39 crore in the June 2020 quarter, against Rs 1,371 crore in the corresponding quarter last year.

Revenue for Q1 also fell 56 per cent to Rs 5,589 crore, from Rs 12,805 crore a year ago. Overall performance was dragged down by a loss of Rs 576.08 crore, incurred by the automotive segment. “Tightening capital allocation will continue being the narrative for the auto sector, while maintaining the leadership position will be the focus for the farm equipment sector,” said Aneesh Shah, deputy MD and group CFO.

The number of vehicles sold during the quarter crashed by 78 per cent to 27,565 units in Q1FY21, while tractor sales contracted 22 per cent to 64,140 units, from 82,013 units in the year-ago period.

During the June quarter, auto sales in India declined by 81.5 per cent over the previous year. After the first-ever zero sales month in April, the industry is finding its way back and volumes have started inching up. 

The government’s spend on agriculture has risen substantially of late, and this, among other factors like a favourable monsoon, has augured well for the tractor market, said Rajesh Jejurikar, executive director (farm equipment and automotive sector) of M&M.  

He however, refused to provide any guidance on tractor volumes for the industry, or for M&M. “Unless there is disruption in the supply chain (due to Covid-19 issues), we expect the strong sales momentum to continue,” said Pawan Goenka, MD of M&M.

On the automotive side, the automaker’s inventory levels at dealerships are at their lowest ever, said Jejurikar. M&M is set to launch the new Thar on August 15.