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M&M: 3QFY02 net down 44% - Views on News from Equitymaster
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  • Jan 29, 2002

    M&M: 3QFY02 net down 44%

    Mahindra & Mahindra (M&M), the diversified auto major, has reported a 36% fall in profits for the third quarter ended December 31, 2001. While turnover has increased in 3QFY02 marginally, thanks to the encouraging performance of its newly launched utility vehicle 'Bolero', for the first nine months of the current fiscal, the performance is not encouraging.

    (Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
    Net sales 9,049 9,178 1.4% 25,933 23,640 -8.8%
    Other Income 60 62 2.4% 523 339 -35.1%
    Expenditure 8,150 8,168 0.2% 23,972 22,008 -8.2%
    Operating Profit (EBDIT) 899 1,010 12.4% 1,961 1,632 -16.8%
    Operating Profit Margin (%) 9.9% 11.0% á 7.6% 6.9% á
    Interest 169 218 29.3% 465 656 41.1%
    Depreciation 353 364 3.3% 1,016 1,067 5.0%
    Profit before Tax 438 490 11.8% 1,003 248 -75.2%
    Extraordinary item - (121) á - (217) á
    Tax - 126 á 90 6 -93.6%
    Profit after Tax/(Loss)** 438 243 -44.5% 913 25 -97.2%
    Net profit margin (%) 4.8% 2.6% á 3.5% 0.1% á
    No. of shares (m) 110.5 110.5 á 110.5 110.5 á
    Diluted Earnings per share (Rs)* 15.9 8.8 á 16.5 0.5 á
    P/E á 12.4 á á 238.1 á
    P/E á 12.4 á á 238.1 á
    *annualised, ** after considering prior period adjustments

    The company has lost market share in the tractor segment, which accounted for 44% of sales in FY01, in the current fiscal. M&M's market share stood at 26% in 1HFY02 compared to 33% in the corresponding period previous year. While industry sales fell by 17% in the first half, M&M's tractor sales declined by 35%. Though the trend seems to have reversed in 3QFY02, value growth is unlikely in light of excess inventory build-up in the industry.

    Revenue break-upů
    (Rs m) 3QFY02 % of sales 9mFY02 % of sales
    Automotive 4,891 53.3% 12,938 54.7%
    Farm equipment 4,164 45.4% 10,480 44.3%
    Others 143 1.6% 277 1.2%
    Total 9,198 - 23,694 -
    Less: Intersegment Revenues 21 0.2% 54 0.2%
    Net Sales 9,178 100.0% 23,640 100.0%

    But M&M has successfully increased its market share in the UV segment thanks to the resounding performance of 'Bolero'. The automotive division contribution to sales has increased from 53% in 3QFY02 to 55% in the first nine months of the current fiscal. Margins have improved in 3QFY02 and are in line with expectations. But in 9mFY02 operating margins are lower by 70 basis points and this could be attributed to the destocking initiative taken by the company in 1HFY02 coupled with pricing pressure.

    During the quarter, Gesco Corporation Limited has become a subsidiary of the company consequent upon the demerger of the Realty and Infrastructure businesses of Mahindra Realty and Infrastructure Developers Limited into Gesco Corporation Limited.

    Net profit for 3QFY02 has declined by 36% after considering expenses towards voluntary retirement scheme to the tune of Rs 83 m. Extraordinary item also includes Rs 37 m towards prior period adjustments.

    The stock currently trades at Rs 109 implying a P/E multiple of 12.4x annualised 3QFY02 earnings. M&M is expected to launch new models in 1QFY03 under its 'Project Scorpio' towards which it had spent Rs 6 bn. Though the company is optimistic of the new project, one has to be cautious on this front in light of the prevailing competitive environment. While the company's strategy on the export front is encouraging, it had to bear the burnt of excessive production of tractors in anticipation of a rise in demand in the current fiscal. But with rural demand showing signs of recovery, M&M is expected to perform well in FY03.



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