Mahindra’s Q3 net zooms 40% on robust tractor sales, cost control

Led by robust volumes of tractors and stringent cost control measures, Mahindra & Mahindra (M&M) posted a 40 per cent year-on-year (YoY) jump in net profit to Rs 531 crore for Q3FY21.

The bottom line of the standalone entity (including vehicle-making unit MVML) was pegged back by impairment provisions taken on account of Korean subsidiary SsangYong Motor Co (SYMC). Excluding the exceptional item, net profit was up 78 per cent.

SYMC will come under “discontinued operations” identified for bankruptcy on December 21. M&M will stop reporting financials of the firm from the next quarter.

Revenue from operations during the quarter also increased 16 per cent to Rs 14,057 crore from Rs 12,120 crore a year ago. Tractor sales in the domestic market jumped 20 percent YoY to 97,420 units. Sales in the auto segment, including commercial and passenger vehicles, however, dropped 7 per cent YoY to 115,272 units.

In Q3, the record sale of tractors made up for the contraction in the auto segment and improved margins. The rising share of tractors in the volume mix is helping improve its margin profile, despite higher commodity costs.

While revenues rose 4 per cent, operating profit was up 33 per cent. About 70 per cent of the operating profit of the stand-alone entity came from the tractor segment, which reported its highest profits at the segment level.

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At 23.4 per cent, the segment’s margins rose 400 basis points YoY.

In comparison, auto segment margins came in at just over 6 per cent.

This could improve as it is expected to see demand recovery across utility and commercial portfolios. What will, however, remain a laggard in the near term is three-wheelers. While the company increased prices in January and is looking at managing inflation through value engineering efforts, it indicated that if the trend does not reverse, it will consider a second hike in the June quarter.

Pawan Goenka, MD and CEO of M&M, said the company was witnessing strong demand for its SUVs, including the Bolero, Scorpio, XUV 300, and the new Thar. It expects the order book for the next 7 months to be strong. The global shortage of semiconductors has impacted production. “The two big concerns for M&M and for the world is the shortage of semiconductors, something we are perplexed by, and a persistent rise in commodity prices.”

Rajesh Jejurikar, executive director of farm equipment and automotive sectors at the firm, said the company hasn’t been able to produce enough to meet demand, leading to very low inventory levels with dealers.

Jejurikar remains very optimistic on tractor demand because of the good kharif crop.

“Double-digit growth in rural deposits for the eighth consecutive quarter, direct cash transfers, and increase in Jan Dhan accounts is likely to have supported growth,” he said.

Shares of the company fell 0.1 per cent on the BSE to end the session at Rs 865.6 apiece on Friday.

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