M&M reports 20% drop in Q1 net profit at Rs768 cr

Mahindra & Mahindra reported a 20 per cent drop in its fiscal first quarter net profit at Rs768 crore against a net profit of Rs961.3 crore in the year-ago quarter, pulled down by Rs144 crore provisioning on account of transition loss to GST regime.

Mahindra said its performance in the tractor segment with a record high market share of 45.8 per cent during Q1, helped company overcome the fall in volumes in passenger vehicle space and grow net revenues in Q1 by 5.4 per cent to Rs11,094 crore.

Earnings before interest, depreciation, taxes and amortisation (EBIDTA) for Q1 declined 110 basis points to 14.2 per cent.

Net profit was impacted to the extent of Rs91 crore during the quarter due to a provision of Rs144 crore made by the company for dealer support.

Also, Mahindra said, the government ban on BS-III vehicles impacted the company's revenues as it had to sell off inventories at lower margins.

''The unavailability of input credit for certain taxes paid, as well as due to tractors being exempt from excise duty in the earlier regime, the company had to ensure minimum impact for customers,'' the company said in a statement.

Net sales during the period was moderately up by about 5 per cent to Rs11,575.71 crore, while the operating margins remained under pressure. The company reported EBIDTA of R1,266.56 crore, a fall of nearly 2 percent, while the EBDITA margins contracted by 78 basis points to 10.94 per cent.

Speaking to newspersons at the earnings conference, Pawan Goenka, managing director, M&M said, ''This was an eventful quarter. It started with BS III ban, which came in like a bombshell for the auto industry and it was followed by the GST transition. The industry though has managed these disruptions quite well.''

The company saw a moderate increase in the domestic vehicles volumes which grew by 1.2 per cent to a total of 1.12 lakh vehicles, which was led by a smart increase in the LCV goods segment to 43,009 vehicles. VS Parathasarathy, chief financial officer, M&M said, ''The company's LCV segment grew by a strong 20.7 per cent in the quarter, but we degrew in most other segments, especially in the Utility Vehicle (UV) sector. Our volumes in the farm equipment space rose by 13.5 per cent, better than the industry. This helped us achieve a market share of 45.8 per cent in the segment, which is the highest share for M&M in a single quarter.''

Barring LCV, all other vehicle categories saw a decline in volumes during the quarter. The sharpest fall came in vans and passenger car volumes, which were lower by nearly 22 per cent to 2,703 units, while the utility vehicles (UV) fell by over 5 per cent to 53,082 units.

However, Goenka said that the company is working towards turning around its UV business. ''We are putting in all efforts to turn around our UV business. Expect a series of new launches and refreshes in the UV space in the coming next 6-9 months,'' he said. To regain market share in the UV segment, the company plans to launch an SUV, codenamed the U321 in the current fiscal. Apart from this, the company will also launch a compact SUV (codename S201) next year, which will compete with the segment's favourites, the Maruti Vitara Brezza and the Ford Ecosport. Going forward, Goenka said there are no signs of subdued demand.

''With more stability, we expect a robust growth. Especially in the tractor segment, which can grow by around 10-12 per cent with an upward bias. Also, the passenger vehicle sector can grow by around 10-12 per cent with the UVs growing faster at around 13-15 per cent. Although heavy commercial vehicle sales may remain flat due to the ban on the BS III (Bharat Stage 3) vehicles.''

Meanwhile, the sales of heavy commercial vehicle goods segment showed a dip as a result of pre-buying of BS3 vehicles, saturation of replacement demand and production constraints of BS4 models. The tractor industry too witnessed a de-growth of 1.7 per cent owing to the uncertainty with regard to transition to a GST regime. Overall the domestic tractor industry witnessed a growth of 8.5 per cent in Q1FY18.