M&M’s net profit jumps on low base; Weak tractor sales weigh on operating performance

Mahindra & Mahindra today posted strong growth of 61% on year in its standalone net profit for the December quarter despite a contraction in its operating profit margin. The profit jumped on a low base in the year-ago quarter as the company had recorded a one-time impairment charge during that period. Margin, however, contracted amid weakness in the tractor volumes and higher expenses.

The company’s standalone net profit for the quarter came in at Rs 2,453.98 crore, against Rs 1,528.06 crore in the year-ago period. In the third quarter of the previous year, M&M recorded a one-time impairment provision of Rs 629 crore, arising from a re-evaluation of the truck and bus division.

Revenue from operations rose 16% on year to Rs 25,642.36 crore, primarily driven by higher prices. Total vehicle volume increased by 20% on year to 211,443 units. But the number includes 27,198 units sold by a separate entity MLMML (Mahindra Last Mile Mobility Ltd), which was demerged last September. Revenue in standalone results does not include realisation from these volumes, the company noted.

Meanwhile, tractor sales fell 4% to 1,00,522 units during the quarter. The tractor industry contracted on the back of last year’s high base, weather vagaries and lower reservoir levels, M&M’s Executive Director and CEO for the Auto and Farm sector Rajesh Jejurikar said. The tractor and farm equipment business is more profitable for M&M than its auto business.

On the profitability front, the company’s earnings before interest tax and depreciation (EBITDA), or operating profit, grew 10% to Rs 3,590 crore. However, the EBITDA margin for the quarter came down to 14% from 14.8% in the year-ago period as the revenue growth could not offset the impact of higher expenses during the quarter.

Total expenses during the quarter rose 16% on year to Rs 22,904.78 crore, driven by the cost of materials and employee benefits experience. The cost of materials consumed was up 20% at Rs 17,803 crore. The cost of materials consumed as a percent of revenue from operations also increased to 69.4% from 66.9% in the year-ago period.

For the nine months that ended December 31, M&M’s standalone net profit rose to Rs 8,679.59 crore from Rs 4,999.67 crore while revenue from operations increased to Rs 75,783.37 crore from 64,030.84 crore.