The times seem to be getting tougher for auto and farm equipment maker Mahindra and Mahindra (M&M). After a disappointing festive season, November saw volumes of utility vehicles (UV) sales drop a steep 41 per cent — the segment (including exports) has clocked a growth of just 2 per cent between April and November this year. In a challenging environment, in which interest rates remain high and the economy continues to slow down, there’s very little chance the company will sell more UVs in the current year than it did in 2007-08, during which it did brisk business.
It’s also little consolation that the competition isn’t faring any better or that M&M has held on to its market share of 43 per cent between April and October. As if the problems in the auto division weren’t enough, volumes for tractors in the home market came off by a steep 33 per cent in November — between April and November total volumes of tractors (including exports) have risen just 2 per cent.
Higher raw material costs have already dented M&M’s operating profit margins by over 200 basis points in the September 2008 quarter. The fall was driven primarily by a sharp 400 basis points fall in the margins for the automobile segment. That coupled with notional foreign exchange losses ,of around Rs 118 crore, pushed down the stand-alone net profit by about 20 per cent. With prices of steel and aluminium coming down, the raw material bill could be lower in the second half of the year than it was in the first half.
However, operating margins are unlikely to improve unless there is a pick up in sales. Consolidated revenues for the company are expected to rise by about 15-19 per cent in the current year over the Rs 23,790 crore recorded in 2007-08. However, despite this, the net profit for 2008-09 could now be as much as 8-10 per cent lower than the Rs 1,816 crore posted in 2007-08. It could be a while before M&M is back on track.
