M&M: The free fall continues - Views on News from Equitymaster

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M&M: The free fall continues

Oct 30, 2001

Mahindra and Mahindra (M&M) has reported a dismal performance for the quarter ended September 30, 2001. While sales have fallen by 9.4% to Rs 7,611 m, the company has slipped into the red for the second quarter in succession.

(Rs m)2QFY012QFY02Change
Sales 8,399 7,611 -9.4%
Other Income 242 133 -45.1%
Expenditure 8,006 7,151 -10.7%
Operating Profit (EBDIT) 394 460 16.8%
Operating Profit Margin (%)4.7%6.0% 
Interest 162 221 37.0%
Depreciation 339 329 -2.9%
Profit before Tax 135 42 -68.9%
Extraordinary item (33) (84)152.6%
Tax (30) (15)-50.0%
Profit after Tax/(Loss) 132 (27) 
Net profit margin (%)1.6%-0.4% 
No. of Shares (eoy) (m) 110.5 110.5  
Diluted number of shares 110.5 110.5  
Earnings per share (Rs)* 4.8 -  
(*annualised)   

Tractor volumes continue to remain sluggish in light of the slowdown in the economy. The auto companies were hoping for a revival in volumes towards the beginning of the second half in anticipation of a better kharif output. But that has not happened. Tractors division, which contributed to around 44% of FY01 sales, witnessed a sharp slump in demand in 1QFY02. This resulted in a 25.2% drop in overall volumes of the company in 1QFY02. And this seems to have repeated again in the second quarter as well.

Howver, margins have increased by 130 points thanks to the cost cutting initiatives started by the company last year. M&M has embarked on a cost cutting exercise to become more competitive and reduce the impact of weaker demand. The company's overall expenses have fallen by 11% YoY in 2QFY02 due to lower raw material and staff costs (staff costs declined by 8.9% in 1QFY02). The company had offered a voluntary retirement scheme for its workers and staff at all its offices and plants in Mumbai and reportedly, has drawn good response. Though the company would benefit from such cost cutting measures, volume growth in the coming quarters is expected to be modest.

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