Mahindra and Mahindra (M&M), on Friday, posted a 23x year-on-year jump in the company’s net profit before exceptional items at Rs 934 crore for the quarter ended June 30, 2021. The sharp jump in profit was on account of higher sales volumes compared to a much lower base in the corresponding quarter last year, which was hit by Covid-19 led disruptions. The company’s net profit was in line with Bloomberg consensus estimates of Rs 909 crore.
Volumes in both auto and tractor business increased during the quarter. However, the worsening semi-conductor shortage will prove to be a big challenge to supplies. According to the management, this will have a bearing on supplies during the upcoming festive season as well.
Addressing media in an earnings video conference, Anish Shah, managing director & CEO, M&M said, “There have been significant headwinds in the first quarter. But despite those, we have seen strong performance in our farm business and good recovery in automobiles.” The company’s net profit after exceptional items came in at Rs 856 crore, up 12x y-o-y. The quarter’s net profit is after non-controlling interest and excludes Ssangyong.
M&M posted a 110% y-o-y increase in revenues to Rs 11,763 crore during the quarter, but remained below analyst estimates of Rs 12,360 crore as challenges of ramping up production due to supply chain issues largely due to shortage of semi-conductors affected the company’s sales.
The farm equipment segment’s revenue came in at Rs 5,319 crore and reported PBIT (profit before interest and tax) of Rs 1,081 crore—highest ever in first quarter. The tractor industry witnessed strong demand growth of 39% during the quarter. The growth in company’s volume at 48% led to highest domestic market share in eight quarters at 41.8%. Also, all the international subsidiaries of the segment turned profitable during the quarter. The automotive segment revenue came in at Rs 6,050 crore and PBIT of Rs 103 crore. Total vehicles sold by the company stood at 85,858 units, up 190% y-o-y, which was largely led by growth in tractor sales.
The Ebitda (earnings before interest, tax, depreciation and amortisation) for the quarter also surged a good 185% to Rs 1,632 crore, in line with analyst estimates, while the Ebitda margins were up 360 basis points y-o-y to 13.9%. The high commodity price inflation was offset by stringent cost management initiatives undertaken by the company impacting margins favourably.
Rajesh Jejurikar, executive director (automotive & farm sectors), M&M said rising commodity prices remained a worry both for auto and farm businesses. “Margins will be under pressure as commodity prices are rising, and we are doing the best we can by taking price increases and cost management,” he said.
On the semi-conductor issue, Jejurikar said that the situation remains dynamic and needs to be watched closely. “The last 6-7 months have not been easy. The semi-conductor does not impact just one part or component. There are multiple things that need to be balanced in. We have been managing it with some inventory so far. However, future remains unpredictable and is causing uncertainty. We cannot say all is well, all we can say is that we are doing the best we can under the situation,” he said.
However, the worse news is that this will have an impact on the supplies during the upcoming festive season. “Festival period is going to be difficult for waiting periods for everyone. It will be very strong from demand side and pretty uncertain from supply point of view,” Jejurikar said.
M&M, however, has revised its growth targets for the farm segment, and now expects tractors to clock more than a low single digit growth for the year FY22, given that the segment had a high base last year. For the auto segment, it is keeping a wait and watch approach and stopped short of giving any growth targets.
Meanwhile, Anand Mahindra, chairman, M&M said on Friday that the post-pandemic world will witness an explosion of the experience economy, and that the future of business lies in serving this economy.“Linking business to a larger purpose of caring for people and the planet so as to positively impact their lives, will be magic mantra for business success,” Mahindra said while addressing shareholders at the company’s 76th annual general meeting held through audio-visual mode.
He said that M&M will be going into businesses that are in alignment with this core purpose and that drives positive change. Highlighting the group’s future business strategy, he said that the businesses will be segment into core businesses, growth gems, and new age businesses. “Our core businesses, which are today the pillars of our profitability, will continue to grow sustainably. The growth gems are our Nav Ratnas, our businesses of the future that are based on sustainability and will add substantially to our profitability in the years to come. Each one is a potential Unicorn, which we believe will be valued at a billion dollars or more, enabling us to serve people, planets and profits… And the third segment – the new age businesses- is where we will partner with entrepreneurs in creating sustainable ecosystems by becoming a strategic investor,” he said.
