Mahindra & Mahindra 1QFY01: net down 33% - Views on News from Equitymaster

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Mahindra & Mahindra 1QFY01: net down 33%

Jul 31, 2000

Tractor and utility vehicles giant, Mahindra & Mahindra (M & M) has reported a net profit of Rs 343 m for the 1QFY01, a fall of 33% YoY. The company's net sales fell by 1.9% YoY for the 1QFY01 to Rs 8,485 m. As operating expenses grew by 2.3% YoY in the 1QFY01, the company's operating margins fell to 8.3% in 1QFY01.The company's interest costs fell 31% YoY in the 1QFY01, as it has reduced its foreign currency borrowings in FY2000. The net margins fell to 4% in the 1QFY01 from 5.9% in the 1QFY00.

The company's sales were affected as both, utility vehicles and tractors faced tough conditions in the 1QFY01. In the tractor industry though the company's market share went up to 36% YoY in the 1QFY01 as compared to 29.4% in the 1QFY00, the volume growth was only 0.7% YoY to 19,792 tractors. This is because the tractor industry reported a drop in volumes by 17.7% YoY in the first quarter due to drought conditions.

(Rs m)1QFY001QFY01Change
Sales 8,646 8,485 -1.9%
Other Income 237 357 50.8%
Expenditure 7,609 7,783 2.3%
Operating Profit (EBDIT) 1,037 702 -32.3%
Operating Profit Margin (%)12.0%8.3% 
Interest 395 272 -31.1%
Depreciation 290 324 12.0%
Profit before Tax589463-21.5%
Other Adjustments81- 
Tax 158 120 -23.8%
Profit after Tax/(Loss) 513 343 -33.1%
Net profit margin (%)5.9%4.0% 
No. of Shares (eoy) (m) 110.5  
Diluted number of shares 110.5 110.5  
Diluted Earnings per share*18.612.4 

In the automotive segment, the sales tax rationalisation, higher competition and drought conditions in certain states affected the company's utility vehicle volumes. In the 1QFY01 M & M sold 13,624 utility units as compared to 15,581 vehicles in the 1QFY00, a fall of 12.6% YoY. As M & M's stronghold has been the rural markets the drought made matters worse for them. However, Telco's Sumo and Toyota Qualis have done well in the 1QFY01, as these products focus on both rural as well as urban markets.

In the LCV segment the company has done well and sold 1,904 units in the 1QFY01 as compared to 1,464 units sold in the 1QFY00, a growth of 30% YoY.

To counter the competition in the utility segment the company will be launching the "Bolero" a product which will cater to both urban and rural markets. In the tractor industry the company has launched its new generation 60 HP tractor, Arjun 605 DI. This product has been well accepted in the market.

In FY2001 the company plans to focus on brand building and new product launches in both the above segments. As the monsoons are expected to be normal, M & M will see an improvement in demand in both its segments in the second half of the year.

On a positive note the company's subsidiary Mahindra British Telecom (MBT) is expected to come out with an initial public offering (IPO). The offer would be upto 10% of the company's equity by way of fresh equity issue and secondary sale though dilution of stake of existing equity holders. MBT reported a net profit of Rs 206.6 m for the 1QFY01, a growth of 50% YoY.

On the current price of Rs 206, M & M is trading at 8.6x FY2000 EPS of Rs 23.8.

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