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Hit by weak rural demand for tractors and lack of new products in utility vehicles, Mahindra & Mahindra’s (M&M) net profit dropped 39 per cent in the final quarter of the previous financial year. It recorded a stand-alone net profit of Rs 551 crore for the quarter ended March, against Rs 897 crore posted in the same quarter in 2013-14.
By Bloomberg estimates, net profit of the company was expected to be at Rs 581 crore. The company had last posted a net profit of Rs 562 crore in the quarter ended June 2010. This forced the company to reduce its dividend payout for the year to 240 per cent or Rs 12 per share, against 280 per cent or Rs 14 per share paid last year.
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Absolute vehicle sales dipped by 10 per cent in the quarter to 123,175 units, against 136,487 units posted in the year-ago period. Total tractor demand dipped to 38,604 units. Passenger vehicle sales, including utility vehicles (UVs), fell 57,937 units, a decrease of seven per cent.
M&M’s UV market share dipped to 38 per cent, far less compared with 43 per cent recorded in the same quarter in 2013-14. Tractor market share dipped to 35 per cent, compared with 38 per cent in the year-ago period. Net sales for the quarter dipped by 13 per cent to Rs 9,411 crore, against Rs 10,837 crore posted in the year-ago period. This was higher than Bloomberg estimate of Rs 8,873 crore.
M&M said a partial revival in sales will depend on monsoon — crucial for tractor demand — and on new products in the UV space this year.
Pawan Goenka, executive director, M&M, said, “All eyes are on the Kerala coast. Monsoon will be more important this year than earlier years. We expect the second half of the year to bring a change in rural demand.” Industry-wide sales of tractors hit a 12-year low during the quarter as unseasonal rains destroyed standing crops across Maharashtra, Uttar Pradesh and Punjab. The farm equipment business generates 35 per cent of the total revenue for the company.
“If monsoon is normal, we expect the tractor industry to grow by five to six per cent this year,” Goenka added.
Moving forward, the company said it is committed to launching a new model and a new variant in every quarter this year.
The company will make a capital expenditure of Rs 2500 crore this year and will set aside Rs 1,000 crore for likely investments towards merger and acquisitions spread over the next three to four years.
Further, a new business unit has been set up in Africa to make Kenya, Nigeria and Egypt local hubs having offices and even local products, a senior official said.
As for the ailing two-wheeler business, Goenka said that M&M was looking at launching products of France-based Peugeot Motorcycle. “We can also look to sell our motorcycle or scooter under the Peugeot brand or their products under M&M,” Goenka added.
The company has sought shareholders' approval at the ensuing Annual General Meeting of the company, to borrow by way of securities including but not limited to secured/unsecured redeemable Non-convertible Debentures and/or Commercial Paper to be issued under Private Placement basis for an aggregate amount not exceeding Rs 5,000 crore.
