Low tractor & UV sales put Mahindra & Mahindra Q3 net growth at 6%

MUMBAI: Mahindra & Mahindra (M&M) reported a net profit growth of 6 per cent in the third quarter of the financial year after tractor sales dropped and the narrowing gap between diesel and petrol prices hurt dispatches of utility vehicles. Consolidated profit at India’s largest tractor manufacturer increased to Rs 966.75 crore in the three months ended December 31 from Rs 914.46 crore a year earlier, M&M said in a statement. Revenue declined 10 per cent to Rs 9,260 crore.

The company said tractor sales may remain under pressure for the next two quarters and growth is expected to pick up from the second half of the year ending March 2016.

"Tractor sales have been impacted by the cumulative effect of lower sowing area, drop in selling prices for farmers as well as increased input prices. Farm income levels have been quite stressed in the December quarter," said executive director Pawan Goenka. "This is putting pressure on the rural economy. This is the key reason industry sales volumes have dropped by 21 per cent in the December quarter, the sharpest fall observed since 2005."

Revenue from the farm equipment business declined 15 per cent toRs 3,472 crore. Tractor volumes were 26 per cent lower, exceeding the industry average, as M&M focused more on inventory management and did not offer aggressive discounts to lift sales. This enabled the company to reduce finance costs by 30 per cent to Rs 66.3 crore in the quarter.

"In the tough times, we laid more emphasis of reducing our inventory levels. We have reduced our plant and dealer inventories for the auto and tractors segment and currently they stand closer to ideal levels," said Goenka.

"We expect tractor sales to grow at a negative 10-11 per cent in current quarter and entire FY15 is expected to grow at 8-11 per cent. We are expecting 5-7 per cent volume growth for FY16 in the tractor industry," said Goenka.

M&M sold 56,471 tractors in the quarter, narrowing its market share to 39.6 per cent from 41.9 per cent a year earlier. Tractor export volumes grew 50 per cent to 3,385 units.

The company is looking at expanding its focus in the US, Africa and Latin America. A new unit will be set up for the Africa operations, where all business related to twowheelers, tractors, auto and Powerol diesel generators will be implemented though a common platform.

Industry-wide utility vehicle sales dropped 6 per cent during the quarter as the price gap between diesel and petrol narrowed to Rs 9-10 per litre. M&M plans some aggressive launches to counter the pressure on utility vehicle sales.

"We are planning one product, one variant and one refresh every quarter, starting from the next quarter. This would help us to stabilise our market share in the UV segment closer to 40 per cent," said Goenka.