M&M Q3 profit rises 40 percent, revenue grows 16 percent

by Mayank Dhingra and Sumana Sarkar 05 Feb 2021

M&M’s Q3 FY2021 profit is up 40 percent to Rs 531 crore (Q3 FY2020 profit: Rs 380 crore). The profits were however impacted by one-time exceptional income on account of asset impairment of its subsidiaries, primarily Ssangyong, GenZe and Gipps Aero. The revenue too increased by 16 percent to Rs 14, 057 crore from Rs 12,120 crore in Q3 FY2020.

The key highlights of the Q3 performance included the highest ever domestic tractor volume in a quarter at 97,420 units, up 20 percent YoY. The profit before tax and ROCE for Farm division too rose to highest ever levels in a quarter, driven by a 400 bps YoY increase in margins.

New Thar shines in Q3
One of its most buzzing recent launches, the new Thar’s cumulative bookings crossed 38,500 mark on February 1 2021 with over 6,000 new bookings in January 2021. The new Thar is averaging around 200-250 bookings every day with up to 45 percent demand coming for automatic variants, and one-fourth of customers opting for the petrol powertrain. The company posted resilient margins for auto, despite supply issues also helped the performance.

The company is witnessing a “very healthy” demand for its UV models including the Thar, Bolero, Scorpio and XUV300. This compact crossover has received 6,000 bookings over the last six months and as per M&M, its all-India dealer stock for the XUV300 is hovering in triple digits. 

Speaking at the press conference, Rajesh Jejurikar, executive director, M&M, said, “We are prioritising production as per the current demand situation. So, while the Thar clearly is the topmost on the list, it is followed by the XUV300, Bolero and Scorpio.” 

“Typically, customers do not tend to wait when wait times are long, but that’s not the case with the Thar. We don’t see the demand going down anytime soon, we have fairly robust orderbook for the next 4-6 months,” he added. 

“Our core SUV business with the new Thar, combined with two more new-model launches this year make us well placed to eye further growth in the automotive business,” Jejurikar remarked. 

Semiconductor bottleneck
On the supply side, shortage of semi-conductors was one of the key constraints that the company had to contend with in Q3. This also impacted availability of ECUs, due to a high dependence on one supplier. The steep increase in commodity prices was partially offset by a sales prices increase and value engineering actions.

According to Jejurikar, “It’s a very day-to-day management issue and there is a lot of uncertainty around. While we (M&M) seem to have managed December and January reasonably well, it was still lower than what we would have wanted to do.”

“Given the global nature of the shortage situation, it looks like this would spill over to the Q2 of the calendar year as well. Things might normalise around July 2021,” he added.

Apart from the semiconductor shortage, the company also cited rising raw material prices to be another area of concern, not just for M&M but for the entire industry. 

“Whenever we are faced with such a situation, we use multiple levers to manoeuvre and unless things come under control, we could probably introduce another price hike in the Q1 of FY2022,” Jejurikar said.

With respect to its South Korean subsidiary, there is no increase in M&M’s exposure to Ssangyong as compared to Q2 FY2021. SYMC had filed an application before the Bankruptcy Court for commencement of rehabilitation proceedings on December 21, 2020. It is now preparing and plans to submit a pre-packaged rehabilitation plan with equity investment from an investor and debt from local lenders. 

Focus on EVs and new gems
The company, which ventured into the EV space in India with acquisition of the Reva Electric Car Company to form Mahindra Electric in 2010, is now betting big on growth from the EV sector. 

According to Dr Anish Shah, deputy managing director and CFO, M&M, There is significant focus on EVs going forward and there are already a number of EV assets that we have. For instance, at Mahindra Electric, there is a lot of data that can be monetised, and we are working to see how the Battista EV from Pininfarina could be aligned to benefit M&M’s business.  These are the agendas that we will be working on in the next three months.”

Dr Pawan Goenka, managing director, M&M, also revealed that the company is working with two more companies – one based in Detroit and another in Turin, Italy – in order to develop more than one electric vehicle platform. The project is currently understood to be in initial phases.  

M&M also stressed upon new growth avenues such as its used-car business Mahindra First Choice Wheels, which it considers to be a maturing platform and is looking to scale it up to develop into a bigger platform. The company is also betting big returns on its investments in emerging mobility startups like Porter, as well as certain ‘gems’ such as Mahindra susten in sustainable energy and Mahindra Cero, which is into automotive recycling and company claims, is bound to be benefited by the recently-announced Voluntary Vehicle Scrappage Policy.

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