M&M’s Q2 profit rises multi-fold, margins impacted by commodity spike

M&M’s Q2FY2021 consolidated revenues jumped 13 percent to Rs 14,968 (Q2FY2021: Rs 13,204 crore on resilient operating performance. Its profit rose manifold to Rs 1,929 crore during Q2FY2022 from Rs 136 crore in Q2FY2021 when it sustained one-time impairment charges on its long-term investments and losses from now bankrupt South Korean subsidiary, Ssangyong Motor. Managing the tough supply chain environment given the spike in commodity prices and semiconductor shortage impacted margins.

According to Anish Shah, CEO & MD, M&M even as prices of raw materials jumped, the company countered it by increasing selling price. Speaking on the slow demand recovery in rural markets, Shah added that, "Once we have supply fully  restored, then we will get a better sense of the demand situation” clarifying  that supply continues to lag behind demand currently across segments in which it operates.

M&M, like most OEMs, have been impacted by the semiconductor shortages and lost about 32,000 units in vehicle sales volume on account of shortages in primarily the ECU parts. M&M informed that it sold 99,334 vehicles during Q2FY2022, about a 9 percent hike in comparison to  91,536 units sold during Q2FY2021. However, with demand for tractors slowing down after a three-year high, the company's tractor sales fell by 5 percent to 88,920 units Q2FY2022 (Q2FY2021: 93,246 units). 

Talking on seeking external funding similar to its local rival Tata Motors for its EV development, Shah added that M&M is open to all forms of investment including collaboration in new technologies. The company has already committed Rs 3,000 crore investment over three years for its EV category. 

M&M Executive Director Rajesh Jejurikar said, "We had a blockbuster XUV7OO launch witnessing bookings of more than 70,000. The demand for our other key automotive products also remains strong. With better availability of semiconductors, we hope to maintain the volume growth momentum Q3 onward."

Six-year plan for auto and farm sector
Meanwhile, M&M laid out its plans to launch a spate of products in the auto and farm segments over the next six years.  Highlighting the blueprint of the plans, Jejurikar remarked that core focus in the SUV segment will be on five brands- Bolero, Scorpio, XUV, Thar and new electric vehicle (yet to be named). Further, in the LCV category, the emphasis will be on consolidated market leadership (greater than 3.5T) with 17 new launches by 2026 which includes 12 with CNG options and 8 in electric. 

The company is also looking to improve its presence in the farm equipment segment which it claims has tremendous potential in coming years. M&M expects the domestic farm machinery industry to witness a jump  in growth to about Rs 12,000 crore in 5-7 years from about Rs 5,000 crore currently. It targets revenue of about Rs 5,000 crore including Rs 1,000 crore from exports alone. 

Further, the company claimed that the valuation of Porter currently has been pegged at about Rs 3,750 Crore which is four times increase in the past couple of years. Porter, an intra-city logistic company in which M&M has a majority stake, operates in about 35 top cities.

In a separate regulatory filing, the company announced acquisition of Meru Cabs, a ride-sharing company by Mahindra Logistics. M&M holds over 58 percent stakes in Mahindra Logistics. As per the statement, M&M anticipates significant synergies by acquisition of Meru into Mahindra Logistics which will help in  leveraging synergies and  better serve its B2C and enterprise customers.

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