| Costs remained in check "" raw materials to sales was up just 60 basis points at 69.6 per cent ""leading to an expansion in the operating profit margin by 144 basis points to 12.1 per cent. |
| The subsidiaries, which now contribute 39 per cent to the group top line and 57 per cent to the bottom line, higher than in the March quarter, have boosted the group profit after tax after to Rs 290 crore, an impressive increase of 53 per cent y-o-y. |
| Tractor sales were the highest ever in a quarter at Rs 946 crore, a jump of 32 per cent y-o-y and M&M gained market share in the 40 HP-plus segment, the overall share remaining at 32 per cent. |
| On the other hand sales of utility vehicles (UVs) were flat, though the company managed to retain share at just under 44 per cent. The Scorpio sold 17 per cent more y-o-y, probably an indication that the newly-launched version is becoming popular. |
| As for three-wheelers, though industry volumes shrank 8.4 per cent during the quarter, M&M managed to restrict the fall in its volumes to 1.6 per cent y-o-y with Champion Alfa believed to be doing well. |
| M&M has quite a few products in the pipeline including the Logan, being manufactured in the joint venture with Renault, which should hit the road sometime in the first half of 2007. |
| An LCV and a family vehicle in the UV space are also in the works. At Rs 660, the stock trades at 12.5 times estimated FY07 and around 10 times FY08 earnings, which are undemanding. |
| While costs will surely put pressure on margins and the high base could slow the growth of tractors, the automotive segment should see a revival with new launches. |
| The one-time cash inflow of Rs 189 crore from the sale of Tech Mahindra shares will come in handy and there is more value to be unlocked from its subsidiaries. |
| Oil refiners: Higher margins |
| Oil refiners have enjoyed higher gross refining margins (GRMs) in the June 2006 quarter on a y-o-y basis, but that has been more or less offset by a mounting subsidy burden. |
| For instance, Chennai Petroleum saw its operating profit grow by 10.76 per cent y-o-y to Rs 478.86 crore in the June 2006 quarter, as compared to a 37.7 per cent growth in net sales to Rs 6464.15 crore. |
| Its operating profit margin also declined by 180 basis points y-o-y to 7.4 per cent in the last quarter. The company's GRMs were at $6.64 per barrel in Q1 FY07 compared with $6.52 per barrel a year earlier. |
| However, the company's subsidy burden towards sharing of under-recoveries of oil marketing companies amounted to Rs 168 crore in the June quarter, as compared to nil a year earlier. |
| Meanwhile, Kochi Refineries saw a huge 148 per cent jump in its sales to Rs 5463 crore, as its throughput nearly doubled for the quarter to 2.11 million tonne. |
| However, operating profit growth didn't keep up the pace and the operating profit margin decline by 396 basis points y-o-y to 5.16 per cent in Q1 FY07. The company's subsidy burden was at Rs 135.7 crore in Q1 FY07. |
| In case of Bongaigaon Refinery, net sales improved by 10 per cent. Operating profit improved almost 20 per cent as the petrochemical division turned around, while the loss in the PSF division reduced. |
| As a result, its operating profit margin by 66 basis points y-o-y to 8.71 per cent in Q1 FY07. BRPL's subsidy burden at Rs 35.96 crore in the last quarter was not too large as a proportion of net sales. Also, as the company operates in the North East, it enjoys tax advantages. |
| The government recently approved the merger of Kochi with BPCL, which holds 54.81 per cent in the company. Kochi shareholders will receive 100 shares of BPCL for every 225 shares held in the company. Given investors' concerns about the mounting subsidy burden, valuations of oil refiners are quite low. |
| Bongaigaon trades at 3.5 times estimated FY07 earnings, while Chennai Petroleum is available at 3 times estimated FY07 EPS. |
| With contributions from Shobhana Subramanian and Amriteshwar Mathur |
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