M&M group net income plunges 78% to Rs 368 crore as demand slide continues

Mahindra & Mahindra on Friday said its consolidated net income plummeted 78.44 per cent to Rs 368.43 crore in the quarter to September as the volumes fell sharply even though the automaker could maintain strong margins.

On a standalone basis, the company did better with a net income of Rs 1,355 crore, down 23.8 per cent, thanks to a relatively better show by the tractor arm.

Consolidated revenue stood at Rs 23,935.93 crore, down almost 6 per cent from a year ago, of which automotive revenue stood at Rs 12,058.79 crore, down from Rs 14,330.54 crore and farm equipment revenue stood at Rs 5,369.89 crore marginally down from Rs 5,451.20 crore, pulling down it pretax profit by over 13.7 per cent to Rs 702 crore.

During the quarter, its automotive volume dipped 21 per cent to 1,10,824 from 1,41,163 units, while tractor sales stood at 68,359 units, down 6 per cent from 73,012 units, while the industry volume plunged 10 per cent.

Despite this, the company marginally improved its margins by 10 bps to 14.1 per cent during the quarter from the previous three months period, thanks to the cost-cutting measures coupled with stable input prices, primarily metals. Addressing the media, managing director Pawan Goenka chose not to offer a volume or revenue guidance saying, the market is so unpredictable that it is virtually impossible for him to correctly say how the next five months will be.

"However, October has been extremely good, thanks to the festive demand coupled with huge discounts. The net result is that after 12 months, the industry could contain inventory pile-up, which began with the drastic fall in retail sales in 2018 Diwali. Currently, industry-wide inventory is at a five- year low and I hope it continues to remain so," Goenka said.

He also said a better picture can emerge only after looking at the November and December demand. At least November numbers should be good given the many auspicious days for marriage in the month.

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But he sounded a bit more optimistic about the tractor market saying even though he was expecting only around 5 per cent contraction in volume in the first half, contraction was much worse at 10 per cent and that he personally feels the industry will be lucky if it closed with a 7-8 per cent drop by the end of March.

However, Goenka said, M&M fared better on the market share front despite steep volume fall across the verticals it operates in as the industry fared much worse than the company.

He also refused to say whether he expects pre-buying and the resultant pick-up in volumes ahead of the BS-VI introduction from April, saying for this to happen, first of all, the oil companies have to announce when they will begin delivery of the BS-VI fuel and then we OEMs have to announce the actual price increase on the new models from April. These two steps can prompt consumers to decide on their purchase decisions.

"So far, the oil companies have just said they will be ready to supply BS-VI fuels from the appointed date, no other details. Ideally, the supply should begin at least two months before. So a lot depends.

"Anyway Mahindra will be rolling out BS-VI vehicles from mid-January and begin to massively scale down production of BS-IV models from mid-February," he said.

Financial services vertical posted revenue of Rs 2,880.12 crore, up from Rs 2,458.33 crore, while hospitality segment reported revenue of Rs 555.37 crore, up from Rs 479.72 crore. Revenue from real estate vertical was also up at Rs 329.39 crore from Rs 84.55 crore.

The tax expense declined to Rs 403.4 crore from Rs 519.4 crore, and chief financial officer VS Parathasarathy said they have not taken a call on switching to the new lower tax regime even though the manufacturing arm has done so.

After rallying over 2 per cent in the run-up to the earnings announcement, the M&M counter closed flat with a negative bias at Rs 580 as against an 81 bps plunge in the Sensex, spooked by the macroeconomic worries following the downward revision in the rating outlook by Moody's.