File Photo:The logo of Mahindra and Mahindra is seen on a car at a showroom in Mumbai, India
Mahindra and Mahindra's (M&M's) tractors may not be as visible as its sports utility vehicles (SUVs) which vroom on Indian roads. But it is the tractor that is driving the automobile major's profitability while being a smaller contributor to revenues. As things stand this year, tractors could further expand share in both revenue and profitability. This is because tractor sales, driven by prospects of a normal monsoon, have grown 11 per cent this year against a decline in passenger vehicle sales. M&M is the country's largest tractor player, with a 41 per cent market share.
The company's profit before interest and tax (PBIT) from the farm equipment segment (primarily tractors) rose 31 per cent last year to Rs 2,562 crore while the same from automotive (SUVs and commercial vehicles) declined over 17 per cent to Rs 2,162 crore. Automotive segment's PBIT was higher at Rs 2,623 crore in FY16 when farm clocked Rs 1,956 crore. However, it is not the first time that the farm segment contributed more to the company's PBIT.
The farm segment is much smaller in size, roughly half compared to the revenues from the automotive segment (Rs 27,181 crore in FY17). However, against a three per cent growth in automotive revenue in FY17, the farm segment revenue grew 22 per cent to Rs 13,786 crore on expanding tractor sales. The company posted a 14 per cent growth in profit last year at Rs 4,050 crore and this growth was led by the farm segment. This trend is expected to continue in FY18 as tractor sales will surge due to monsoon-led demand. The company's leadership in SUV market is being challenged by Maruti Suzuki.
The company said the performance of automotive segment was hit by end of government benefits for Haridwar unit and losses from transition to BS-IV emission norms for commercial vehicles (Supreme Court banned sale of all BS-III vehicles from April).
"The automotive sector had two major impacts during FY17 - impact of Rs 171 crore due to BS-III issue and and an impact of Rs 536 crore due to expiry of fiscal benefit for the Haridwar unit. If you put both of them together, the impact is more than Rs 700 crore. This broadly explains the automotive segment performance," V S Parthasarathy, group chief financial officer at M&M said in response to queries.
The BS-IV issue is a one-off while the end of incentive for Haridwar unit could continue to show in the performance of the automotive segment. The margin and profitability of the farm segment at M&M are significantly higher than those of the automotive segment, but farm segment is smaller in revenue. The company did not comment on specific margin-related queries of both the segments.