M&M group profit dips 24% to Rs 1,355 cr amid slowdown

In the commercial vehicle segment, sales declined by 26% y-o-y to 49,525 units in Q2 FY20. The heavy commercial vehicles segment suffered the worst de-growth in 24 quarters with a fall of 61%.

By: | Published: November 9, 2019 10:19 AM
Mahindra to observe no production days at plants for up to 17 days this quarter Image: Reuters

 

Mahindra & Mahindra and Mahindra Vehicle Manufacturers (MVML)'s consolidated net profit for the quarter ended September declined 24% to Rs 1,355 crore on the back of continued slowdown in the sector leading to de-growth across segments. Revenues from operations fell 15% to Rs 10,935 crore compared to the same period last year.

Earnings before interest, tax, depreciation and amortisation (Ebitda) saw a year-on-year (y-o-y) decline of 16.7% in the September quarter (Q2FY20) to Rs 1,541 crore. Ebitda margin remained steady in Q2 at 14.1% as against 14.5% in the year-ago period.

M&M's overall sales in Q2 FY20 fell 16% on y-o-y basis to 1,91,390 units. The Indian economy continues to cope with suppressed consumer sentiment and a continuing liquidity crunch, which coupled with the high consumer finance rates due to non-transmission of repo rate reduction is impacting demand, the M&M press release said.

Pawan Goenka, managing director at M&M, said that this was the first time since 2001 the auto industry has witnessed two consecutive quarters of de-growth across segments.

Tractor sales fell for the third straight quarter by nearly 8% to 71,820 units as delayed monsoon, uneven distribution of rainfall and floods in several states resulted in crop damage hurting farm income – one of the key drivers of rural consumption. Rural sales may show an uptick in November as the harvest was late and, therefore, farm income generally received in October may shift to this month, according to Goenka. More than half the tractors sold in the quarter were sold in September ahead of the rabi cropping season, but it was still lower at 37,011 units compared to 37,581 units sold last year. “We may end the year with tractor sales at -7% or -8%,” said Goenka.

In the commercial vehicle segment, sales declined by 26% y-o-y to 49,525 units in Q2 FY20. The heavy commercial vehicles segment suffered the worst de-growth in 24 quarters with a fall of 61%. The transition to BS-VI emission standards is one of the key factors weighing on the segment, according to Goenka.

Fleet operators are not only expecting clarity on the availability of BS-VI standard fuel but have their doubts as to the date of transition, which is currently set on April 01, 2020. M&M is planning to stop the manufacturing of BS-IV standard trucks by mid-February and commence production of BS-VI compliant vehicles from January 2020 onwards. Truck sales were expected to surge closer to the date of BS-VI transition, but Goenka believes pre-buying may not happen swiftly. “There is no sign of heavy commercial vehicles turning around,” he said, adding that demand for commercial vehicles may recover post-FY20.

Passenger vehicle sales slumped 36% y-o-y to 44,671 units in the quarter. As car buyers delayed purchases, M&M indicated no production days of 8 to 17 days for automotive segment and 1 to 3 days for farm equipment segment in Q2 FY20. This effort to sell unsold units by reducing supplies from the factory led to retail sales surpassing wholesale figures in the festive month. “Today, the inventory in auto segment, including utility vehicles, at the end of October, is the lowest in at least five years. Everything that went wrong last Diwali in terms of inventory has been corrected now,” said Goenka.

Although deep discounts offered to spur sales of passenger vehicles have kept margins in auto industry under pressure, benign commodity prices have offset the impact, according to VS Parthasarathy, Group CFO at M&M. The company plans to discontinue these discounts in November. The shift to new corporate tax regime was expected to cushion the fall in net profit. However, M&M is still studying the tax regime, Parthasarathy said.M&M shares closed down 0.07% at Rs 580 on BSE.

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