Mahindra and Mahindra Q2 net dips 88% at Rs 162 cr

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November 11, 2020 4:45 AM

He added, “Diwali demand will be very high and then inventory will be low, so the rest of November and December will be used to build inventory. We will see what happens in January. We have a fairly good order booking in auto, which we expect will see sustained demand beyond December.”

Earnings before interest, tax, depreciation and amortisation (Ebitda) increased 34% y-o-y to Rs 2,063 crore, while the margins came in at a strong 17.8% registering an increase of 370 basis points.Earnings before interest, tax, depreciation and amortisation (Ebitda) increased 34% y-o-y to Rs 2,063 crore, while the margins came in at a strong 17.8% registering an increase of 370 basis points.

On the back of strong rural demand, Mahindra and Mahindra (M&M) managed to beat estimates on most counts in the second quarter ended September 30. Had it not been for an exceptional item of Rs 770 crore, the company’s net profit would have been Rs 1,311 crore, marginally lower by 3% on a year-on-year basis.

However, on account of impairment of non-current assets with respect to certain subsidiaries and impairment of certain investment in a joint venture, the company reported a net profit after exceptional item of Rs 162 crore.

In Q1FY21, the company had registered a decline of 96% in net profit at Rs 39 crore, as Covid-19 hit business activity, impacting the earnings of the company.

Revenue from operations was up 6% year on year to Rs 11,590 crore in the second quarter, with the tractor business registering its highest ever operating profit of 24.4%. The modest growth was due to a sluggish passenger vehicle segment, which registered a volume decline of 21% on a y-o-y basis at 87,332 units.

Earnings before interest, tax, depreciation and amortisation (Ebitda) increased 34% y-o-y to Rs 2,063 crore, while the margins came in at a strong 17.8% registering an increase of 370 basis points.

The company management maintained that the demand for vehicles is not pent-up in nature and is structural. Pawan Goenka, managing director and CEO, M&M, said, “Pent-up demand could not have lasted for so long. One month or two I can understand, but now it is October and it is strong. November is also expected to be strong so it has to be structural.”

He added, “Diwali demand will be very high and then inventory will be low, so the rest of November and December will be used to build inventory. We will see what happens in January. We have a fairly good order booking in auto, which we expect will see sustained demand beyond December.”

Rajesh Jejurikar, executive director (automotive & farm sectors), M&M, said the rural demand is all around strong, while urban demand is also showing signs of recovery. “There are several drivers around positivity in rural India. There is a significant amount of money going into rural India because of the monsoon, but also because of government expenditure. We expect that to continue,” he said.

Jejurikar said urban demand is being triggered by two reasons. “The need for personal mobility is driving purchase of vehicles. The second driver is that there is nowhere else to spend money. The only decent outing you can have is in your own car. A vehicle has a significant role in people’s lives. A positive trigger could have come from Covid, but I don’t think it is pent-up demand,” he said.

Meanwhile, company officials said supply chain constraints continued to impact the second quarter, and the company was not able to fully meet demand. However, it is an improving situation and the company is back to normal production on the auto side. On the tractor side, the situation was better as there was no BSVI transition.

Goenka said the initial part of the year was impacted due to the BSVI transition as both plant and dealers had no inventory. Also, the company faced BSVI ramp-up challenges which were coupled with lockdown difficulties.

However, Jejurikar said, the company has stabilised supplies at a better level. “We think post-festive season we will be able to improve stock levels to a level where we can leverage demand much better by January and March. We are also looking at ramping up. In Thar, for instance, we had more than 21,000 bookings. We will ramp up deliveries beyond 2,000 deliveries every month,” he said.

On the international subsidiaries, Anish Shah, deputy managing director & group CFO, M&M, reiterated that the company will not be investing in SsangYong any further and will stand by the board’s decision.

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