Driven by the Xylo, the company’s UV sales have soared in March but the demand outlook remains cautious.
At close to 20,000 units, it’s an increase of almost 30 per cent over March last year. Of course, it’s hard to say whether the momentum will hold over the next few months; after all, March is the second-best month of the year for passenger vehicles as Pawan Goenka, who heads the automobile business at M&M, points out. This is why he too is circumspect about how demand will shape up in the coming months. Given that the macro economic environment hasn’t really improved, it’s possible that demand for passenger vehicles may stay subdued for a few more months.
Nevertheless, the success of the Xylo, for which M&M found nearly 3,200 takers in March, should make it easier for the company to weather the storm. The company’s other models including the Bolero, too are clocking fairly good volumes but of course, their sales are higher by just about 10 per cent. The automotive business, comprising both UVs and LCVs, has been under a fair bit of pressure. In the December 2008 quarter, it posted an EBIT (earnings before interest and tax) loss of around Rs 10 crore, partly because of weaker sales numbers and partly because raw material costs were high.
The tractors segment stayed profitable but despite that, M&M’s operating margin collapsed to 1.5 per cent compared with 11.5 per cent in the December 2007 quarter. The March quarter should see some M&M bounce back — revenues could be up by about 15-20 per cent sequentially. Without doubt, 2008-09, has been a bad year but 2009-10 should be better; M&M is expected to report standalone revenues of close to Rs 13,800 crore compared with around Rs 12,000 crore in 2008-09. The stock has recovered smartly from its lows last December to move up by over 60 per cent and at Rs 395, trades at close to 12 times standalone estimated earnings for 2009-10.