Mahindra Farm Profit Up 15 Percent and Tractor Margin Narrows

Mahindra & Mahindra's farm equipment business reported a 15 percent rise in first-quarter profit to ₹1,520 crore. Margins in the core tractor operation fell 150 basis points to 19.2 percent on higher steel and rubber prices. The company kept its full-year tractor growth forecast at about 5 percent.

Commodity inflation cost the farm business 3 to 4 percentage points of margin in the quarter. Price increases and cost reductions absorbed part of it. Segment revenue rose 15 percent to ₹12,501 crore.

Rajesh Jejurikar, executive director and chief executive of the auto and farm sectors, said at a media briefing in Mumbai on Thursday that the margin remained above the range the business guides to. 

"Typically what we say is our tractor business will deliver margins in the 17 to 19 percent band," he said. "That's what we've been saying for the last many years."

Tractor sales, including those of Gromax agri equipment unit, were 1.58 lakh units. Domestic volumes rose 18 percent and exports 15 percent. Market share was 44.9 percent, down from 45.2 percent a year earlier, which Jejurikar called an all-time high. Industry volumes rose 18.6 percent.

International subsidiaries lost ₹341 crore before interest and tax, against ₹241 crore a year earlier, after Mahindra exited Erkunt Foundry in Turkey. Excluding the related impairment, segment profit before interest and tax rose 12 percent rather than 9 percent.

On the forecast, executives pointed to a high base in the second half of last year, when sales rose after a cut in the goods and services tax. They said they would also wait to see how the monsoon ends.

Jejurikar said rural conditions had improved during the quarter. The rainfall deficit had narrowed to 15 percent from a much wider gap a month earlier. Reservoirs were 7 percent below the long-period average but filling. Sowing in the kharif, or monsoon, season covered 79 million hectares, below last year. Wheat procurement in the rabi, or winter, season rose 19 percent. A shortage of farm labour, as workers take better-paid industrial jobs, is pushing farmers to mechanise.

"While there are a lot of fears about what may happen with El Nino, the reality on the ground is that there are many enabling factors," he said.

ICRA expects industry volumes to grow 1 to 4 percent this fiscal year, against 23.5 percent last year. The rating agency pointed to the high base, lower kharif acreage and the India Meteorological Department's forecast of rainfall at 90 percent of the long-period average, which the weather office attributes to expected El Nino conditions.

Group profit rose 34 percent to ₹5,455 crore. Revenue was up 28 percent at ₹58,188 crore.