Weak automotive demand and slowdown in sales impacted the overall earnings of home-grown automobile major Mahindra & Mahindra (M&M), leading to 16% year-on-year decline in consolidated net profit to Rs 969.25 crore in January-March quarter of 2019. The net profit was further impacted by one time impairment of Rs 105 crore on sale of investments. Adjusted for the one time exceptional item the net profit was Rs 1,074 crore.
Consolidated operating margin for the January-March quarter fell 160 basis points to 13.5% on account of high material costs, and new automotive launches during the quarter, said VS Parthasarathy, chief financial officer of M&M. The operating profit or Ebitda (earnings before interest, tax, depreciation and amortisation) was lower by 6.3% year-on-year to Rs 1,867.82 crore during the March quarter.
The material costs were higher at Rs 9,429 crore in the March quarter from `8,725 crore a year ago, led by higher commodity prices globally.
The domestic automotive industry saw a reversal in January-March quarter after seven successive quarters of growth as the medium and heavy commercial vehicle (MHCV), and passenger vehicle (PV) segments degrew by 5.9% and 2%, respectively.
Overall, the company sold 77,607 vehicles during the March quarter, reflecting a growth of 7% year-on-year despite the headwinds in the sector.
Consolidated net revenue from operations grew 4.6% year-on-year to Rs 13,807.88 crore, led by growth in the automotive segment that grew to Rs 10,222 crore from rs 9,120 crore a year ago. However, the revenue from the farm equipment segment fell to Rs 3,206 crore from Rs 3,716 crore a year ago.
The company is cautiously optimistic of the future outlook as it expects the US-China trade negotiations over tariffs and crude oil volatility may risk future estimates. However, the company believes a lot will depend on smooth transition of the BS VI norms which are slated to take effect from March 31, 2020. “The biggest challenge is how much pre-buying will happen due to BS-VI norms,” said Pawan Goenka, managing director of M&M.
The company undertook a three-day shutdown at its Chakan plant in May to reduce its production, in line with recent industry trend. There are scheduled shutdowns planned in the month of June and October as well. The company plans to reduce its production by 2,000-3,000 vehicles in FY20 as the industry is facing slowdown in demand.
“The company has also planned an investment of `18,000 crore over the next three years, which will be divided into Rs 12,000 crore as capital expenditure and `6,000 crore as investments in other subsidiaries,” Parthasarathy said.
As of March 31, 2019, M&M’s debt to equity ratio was 0.08 against 0.11 a year ago, while gearing was low at 0.32%, the company said.