M&M gains from stimulus, cheaper inputs

Written by fe Bureau | Mumbai | Updated: Jul 31 2009, 05:42am hrs
Automobile company Mahindra & Mahindra (M&M) on Thursday reported a 151.7% rise in its profit after tax for the first quarter at Rs 400.9 crore compared with Rs 159.3 crore a year ago.

The result was improved by the acquisition of Punjab Tractors in the last quarter of 2008-09, but even excluding that, the growth rate was a very impressive 120%. M&M acknowledged the governments stimulus package has helped the company.

The good financial results in the quarter are due to the companys continued and relentless focus on cost reengineering, aided by the steps taken by the government to stimulate liquidity and growth, a company statement noted.

The companys shares responded, going up 1.22% on the Bombay Stock Exchange on Thursday to close at a 52-week high of Rs 852.05.

According to Dilip Chenoy, director-general of industry body Siam, while the government stimulus has helped the auto sector, the good first quarter results are primarily driven by a reduction in raw material prices, improvement in efficiency and better inventory control.

The performance of all companies in the next few quarters will depend on stable raw material prices and consistent demand for their products, Chenoy said.

M&M showed a volume growth of 28.5% in utility vehicles, against an industry growth of just 1.6%, and 13.9% in tractors.

Vailshali Jajoo, an analyst with Angel Broking, said, The company has performed fairly well in terms of its revenue and profits. The operating margin improved mainly due to the decline in material cost.

The M&M results follow a string of good performance postings by auto companies for the first quarter. Earlier this week, Tata Motors, Indias largest vehicle-maker, reported an unexpected 58% rise in its June quarter net profit, helped by lower costs and a change in accounting policy which saw lower foreign exchange-related losses.