M & M 2Q: Disappointing results - Views on News from Equitymaster

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M & M 2Q: Disappointing results

Oct 25, 2000

Tractors and utility vehicles giant Mahindra & Mahindra has reported a 78% decline in net to Rs 132 m for the 2QFY01. Its sales went up from Rs 8,262 m in the 2QFY00 to Rs 8,399 m in the 2QFY01, a miniscule 1% growth.

(Rs m) 2QFY00 2QFY01 Change
Sales 8,262 8,399 1.7%
Other Income 305 370 21.2%
Expenditure 7,182 8,039 11.9%
Operating Profit (EBDIT) 1,080 361 -66.6%
Operating Profit Margin (%) 13.1% 4.3%  
Interest 355 291 -18.2%
Depreciation 302 339 12.3%
Profit before Tax 727 102 -86.0%
Other Adjustments 39 -  
Tax 163 (30) -118.5%
Profit after Tax/(Loss) 604 132 -78.2%
Net profit margin (%) 7.3% 1.6%  
No. of Shares (eoy) (m) 110.5 110.5  
Diluted number of shares 110.5 110.5  
Diluted Earnings per share* 21.9 4.8  
PER (x) 6.4 29.4  

Though we were expecting a decline in profits for M & M in this quarter, these results are worse than our expectations. Hence we would have to downgrade and review our current FY01E forecasts.

The main reasons for the above performance seem to be the dismal demand conditions in both its main businesses, tractors and utility vehicles (UVs).

Its UV volumes have declined by 18% YoY to 25,798 units for the 1HFY01. The main reasons for this performance has been the uniform sales tax at 12% and the drought like conditions that prevailed earlier in certain states. Its market share in the UV segment has fallen to 46.2% in the 1HFY01, as compared to 60.7% in 1HFY00.

1HFY01 Volumes (nos.) % growth Market share
Utility vehicles 25,798 -18.0% 46.2%
Light commercial vehicles 3,377 6.5% 13.9%
Tractors 40,150 9.5% 35.7%

In the tractor industry, M & M has managed to increase its volumes in a declining market. Its volumes for the 1HFY01 went up by 9.5%YoY to 40,150, while all other players saw a decline in their volumes. Its market share too rose from 28.8% in the 1HFY00 to 35.7% in the 1HFY01. The main reason mentioned by the company for better performance is the strong efforts of the company's sales force, even in the drought like conditions.

However as the overall tractor market has been lackluster, the company's realisations in this segment have been under pressure. Besides the costs related to Euro compliance too are being absorbed by M & M, as they do not want to pass it on to consumers. This too will put a pressure on the company's operating margins.

On the current price of Rs 140 it is trading at 5.9x, FY00 EPS of Rs 23.8. The stock was up 4% in today's trading.

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