M&M profit plunges 96%, company to keep investing in successful business, says Anand Mahindra

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August 8, 2020 3:00 AM

MD and CEO Pawan Goenka said the quarter was much better compared with the expectations as the demand was robust and production ramp-up has also happened better than what was expected.

He further said the company has already started identifying and taking appropriate actions on businesses that have not lived up to expectations.He further said the company has already started identifying and taking appropriate actions on businesses that have not lived up to expectations. (File image)

Mahindra and Mahindra (M&M) chairman Anand Mahindra on Friday said the company will commit itself to ambitious growth by continuing to invest in successful businesses and prepare for the future by nurturing and investing in businesses that have the potential of over a billion dollar market cap, while exiting or shutting down loss-making entities.

He further said the company has already started identifying and taking appropriate actions on businesses that have not lived up to expectations. “Far from abandoning our dreams, we are simply reigniting them but in a calibrated, strategic and well thought out manner. The growth in our share price seen since April lows is an indication that we are on the right track,” Mahindra said at the company’s 74th annual general meeting held through audio visual mode.

In the preceding quarter, M&M had said it will be exiting or shutting down its loss-making international subsidiaries and will invest in companies that have potential for growth. The company has divided these firms into different categories and will take appropriate call depending on the future growth momentum in each one of them.

M&M on Friday posted a sharp 96% year-on-year decline in the company’s net profit before exceptional items of Rs 39 crore for the quarter ended June 30, as Covid-19 hit business activity, impacting the earnings. While the tractor business showed good growth, the automotive business remained a drag on the company’s profits.
Anish Shah, deputy MD & group CFO, M&M said, auto which is driven by volumes has taken away large bulk of profits from last year and international subsidiaries and investments remained flat versus last year.

The company’s net profit after exceptional items came in at Rs 68 crore, down 97% y-o-y. Exceptional items included a write-off in Mahindra Automotive North America (MANA) related to an investment not being made in the US Postal Services deal.

M&M posted a 56% y-o-y drop in revenues to `5,589 crore as low pipeline inventory coupled with the challenges of ramping up production due to supply chain issues affected the company’s sales.

The Ebitda (earnings before interest, tax, depreciation and amortisation) for the quarter declined steeply by 67.8% to Rs 575.6 crore, while the Ebitda margins declined 370 basis points y-o-y to 10.3%. The management said the margins held up well as the domestic farm business of tractors is showing better growth momentum.

MD and CEO Pawan Goenka said the quarter was much better compared with the expectations as the demand was robust and production ramp-up has also happened better than what was expected. “Demand robustness is coming from rural sentiment which is very positive given the rabi crop and monsoons. In spite of a quick ramp-up in production, we were not able to meet the demand. Going forward, supply will be the primary concern, even as cash collection has been good during the quarter,” he said.

Rajesh Jejurikar, executive director (automotive & farm sectors), M&M, said the company has seen a significant improvement in the management of core working capital and capex optimisation will improve the company’s net variable margin. “Through stringent cost management we have brought down our costs quite significantly in the quarter compared to same period last year. We have managed the cost and cash part very well,” he said.

In the preceding quarter, Jejurikar had said in the short term— till September the company will look at managing cash, operating margins and safety. The company has divided its trajectory ahead into three phases of ‘walk, run and fly’.

During the quarter, tractors were at 90% capacity utilisation while automotive crossed 50% of their capacity. About 85% of dealers have opened and 100% of the suppliers are open. The company’s stock levels were at much lower levels compared to ever before. “We do see supply as an area of focus and efforts are on to ramp up the supplier base faster so that we have sufficient stock,” Jejurikar said.

Giving an update on the company’s loss-making subsidiaries, Shah highlighted that in addition to discontinuing investments in Ssangyong and exiting genZe, the company has now taken a call on its automotive business in North America. The company called MANA (Mahindra Automotive North America) was working on a bid for US Postal Services for the past few years which involved an investment of half billion dollars, which has now been decided to not go ahead with.

He added that not all subsidiaries will be exited or shut down while the losses will come down significantly from international subsidiaries in FY21 and as the company enters FY22.

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