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Margins take their toll on M & M's net

Jan 30, 2001

Mahindra & Mahindra ( M & M), India's leading tractor and utility vehicle (UV) manufacturer has reported a 44% YoY decline in its net profit for the 3QFY01 to Rs 438. Though this performance is an improvement over its 2QFY01 results, the company continues to face a pressure on its operating margins and volume growth.

(Rs m) 3QFY00 3QFY01 Change 9mths FY00 9mths FY01 Change
Sales 11,719 11,136 -5.0% 32,463 31,499 -3.0%
Other Income 249 166 -33.5% 791 894 13.0%
Expenditure 10,271 10,237 -0.3% 28,819 29,537 2.5%
Operating Profit (EBDIT) 1,447 899 -37.9% 3,644 1,961 -46.2%
Operating Profit Margin (%) 12.3% 8.1%   11.2% 6.2%  
Interest 352 274 -22.1% 1,102 837 -24.0%
Depreciation 307 353 14.7% 899 1,016 13.0%
Profit before Tax 1,036 438 -57.7% 2,433 1,003 -58.8%
Other Adjustments 3 -   36 0  
Tax 255 - -100.0% 575 90 -84.3%
Profit after Tax/(Loss) 778 438 -43.7% 1,894 913 -51.8%
Net profit margin (%) 6.6% 3.9%   5.8% 2.9%  
No. of Shares (eoy) (m) 108.5 110.5   108.5 110.5  
Diluted number of shares 110.5 110.5   110.5 110.5  
Diluted Earnings per share* 28.2 15.9   68.6 33.0  

The company's sales declined by 5% YoY in 3QFY01 due to dismal performance in the UV market. In the tractor division the company has managed to increase its volumes in a declining market, by eating into market share of other players.

For 3QFY01, the company's operating margins at 8.1% have declined by 420 basis points YoY. As compared to 2QFY01 this is an improvement of 380 basis points, mainly due to price revisions across the board for their vehicles. However, as the ratio of new product sales in the current year is higher than its earlier models, this has put a pressure on its operating margins.

In the tractor industry, M & M has managed to increase its volumes in a declining market. Its volumes for the 3QFY01 went up by 6.9% YoY to 62,123, while the industry volumes declined by 10% during this period . Its market share too rose from 29.3% in 3QFY00 to 35.3% in the 1HFY01.

The main reason for this improvement is the successful launch of the company's new products. The new range of 'Sarpanch' tractors as well as its 'Arjun" series have had a good response. Besides the better performance can be attributed to the strong efforts of its sales force.

In the UV segment its volumes have declined by 20% YoY to 39,417 units for 3QFY01. The main reasons for this performance has been the uniform sales tax, ban on soft tops in certain states and lower rural demand. Its market share in the UV segment is 46.5% in the 3QFY01.

The company's new launch in this segment the 'Bolero' is doing well. This vehicle has a waiting list of three weeks and has sold 5,000 units in the first five months.

The results are more or less in line with our full year expectations of Rs 1,302 m for FY01E. Hence we are unlikely to revise our forecasts for the current financial year.

On the current price of Rs 163 it is trading at 13.8x FY01E EPS of Rs 11.8.

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