Mahindra & Mahindra

In quarter ended Dec 2011, the combined net profit of Mahindra & Mahindra and Mahindra Vehicle Manufacturers (MVML) (its 100% subsidiary which manufacturers products such as commercial vehicles, Genio, Maxximo) fell by 3% to Rs 705.94 crore primarily due to EO income in Dec 2010 quarter against none in quarter under review. Moreover, high raw material costs and unfavorable non operating performance moderated the profit growth at PBT before EO. The topline grew by healthy 34% to Rs 8215.55 crore aided by growth across both auto and tractor sales. High raw material costs led to 250 bps fall in operating profit margin (OPM). Thus the operating profit grew by limited 13% to Rs 1090.10 crore

The group consolidated results would be announced later by the company post the announcement of results of few major subsidiaries for Dec 2011 quarter.

In quarter ended Dec 2011, the topline grew by healthy 34% to Rs 8215.55 crore aided by robust growth in auto segment and healthy growth in tractor sales. The auto sales grew by robust 43% to Rs 4990 crore while the tractor sales increased by 23% to Rs 3251.27 crore. The OPM fell by 250 bps to 13.3% on account of spike in raw material costs. Thus the operating profit growth was restricted to 13% to Rs 1090.10 crore. The PBIT margin of auto segment fell by 300 bps to 10% resulting in constrained 11% growth in its PBIT to Rs 502.99 crore. The PBIT margin of tractors fell by 280 bps to 16% limiting growth in its PBIT to flat 4% to Rs 508.41 crore. Fall in other income, high depreciation further worsened by nil EO income (against Rs 117.48 crore in Dec 2010 quarter) though moderated by forex reversal (pertaining to Sep 2011 and June 2011 quarter) led to 2% fall in PBT to Rs 971.83 crore. On accounting 70 bps growth in effective tax rate, the net profit fell further by 3% to Rs 705.94 crore.

Nine Month Performance

In nine month ended Dec 2011, topline grew by healthy 33% to Rs 22276.96 crore backed by growth in auto and farm equipment segments. Fall in OPM by 250 bps to 13.5% led to constrained 13% growth in operating profit to Rs 3009.29 crore. The PBT after EO grew by 5% to Rs 2809.52 crore constrained by spike in interest costs and depreciation costs and nil EO income (against EO income in nine month ended Dec 2010). The net profit settled with 4% growth to Rs 2085.77 crore post accounting 80 bps increase in effective tax rate.

The topline grew by healthy 37% to Rs 8386.81 crore aided b growth across both segments especially automotive segment. The automotive segment reported robust 47% growth in sales to Rs 5116.35 crore on back 31% growth in sales volume to 124989 units and 12% growth in net sales realization per unit. The total sales volume growth has been aided by growth across all its segments. Out of this, the UV sales, its prime segment, achieved 23% growth to 51702 units with 58% marketshare. The four wheeler pick ups including Gio and Maxximo brands grew by robust 48% to 40220 units. The passenger car Verito reported robust 48% growth to 4208 units. The exports grew by robust 51% to 7587 units aided by exports to SAARC, South America and South Africa. The farm equipment sales grew by 23% to Rs 3251.27 crore on back of 12% growth in tractor sales volume to 65754 units and price hike.

Spike in raw material costs (including cost of traded goods) though partially moderated by healthy operating income and cost control measures led to 340 bps fall in OPM to 11.7%. Thus the operating profit grew by marginal 6% to Rs 980.98 crore. The raw material costs, as % to sales net stock adjusted, increased by whopping 500 bps to 74% primarily on increased commodity prices as well as cost of traded goods which includes the purchases of products from MVML (which are sold by M&M). The PBIT margin of auto segment crashed by 410 bps to 8% resulting in 2% fall in its PBIT to Rs 417.89 crore. Also the PBIT margin of tractors fell by 280 bps to 16% thereby limiting the growth in its PBIT to 4% to Rs 508.41 crore.

The company's PBT grew by marginal 6% to Rs 914.05 crore aided by forex reversal in otherwise overall unfavorable non operating performance. It accounted forex reversal of Rs 39.86 crore pertaining to Sep 2011 quarter (debit of Rs 47.46 crore) and June 2011 quarter (credit of Rs 7.60 crore). The depreciation cost grew by 38% to Rs 140.82 crore while the interest cost was Rs 6.77 crore (against income of Rs 2.71 crore in Dec 2010 quarter). Also other income fell by 3% to Rs 40.80 crore. The PBT after EO fell by 7% to Rs 914.05 crore on nil EO income (against Rs 117.48 crore earned as profit on sale of holding in Owens Corning India in Dec 2010 quarter) Further on accounting 220 bps hike in effective tax rate, the net profit fell by 10% to Rs 662.15 crore.

In nine month ended Dec 2011, the topline grew by healthy 34% to Rs 22480.97 crore on improved sales volume and price hikes across segments. High raw material cum cost of traded goods cost led to 330 bps fall in OPM to 12.2%. Thus the operating profit growth was limited to 6% to Rs 2752.33 crore. Incurring interest cost (against interest income in nine month ended Dec 2010) and higher depreciation cost though moderated by forex reversal limited the growth in PBT before EO to flat 4% to Rs 2703.31 crore. It was further worsened by incurring nil EO income (against Rs 117.48 crore in nine month ended Dec 2010) thereby resulting in flat PBT after EO of Rs 2703.31 crore against Rs 2711.57 crore in nine month ended Dec 2010. The net profit fell by 2% to Rs 2004.41 crore on 170 bps hike in effective tax rate.

Outlook

The current year to date, with global macro risks particularly in the oil markets, has been a challenging one. The country's economic growth, as a consequence, moderated significantly, and the year's GDP is expected to grow by only 7.1%. As per IIP data, during April- December 2011 industrial production grew by just 3.8%. There are, however, some positive economic signals on the horizon at the moment. The recent positive economic news flow from the US and the long term refinancing operations announced by the European Central Bank in December has helped calm global financial markets. Portfolio flows to India, as a consequence, have picked up considerably in recent weeks, easing pressures on the balance of payments and the exchange rate. Also, domestic inflation, while still high, has begun trending down, raising hopes of a decline in interest rates. The Company has always met challenges through its continuous focus on new product introductions which have helped it drive volumes. However, in the near future, it is expected that margins will continue to be under pressure.

The scrip closed at Rs 689.45, down 2.88% on 7^th Feb 2012 at BSE.

M&M and MVML: Combined Results

M&M and MVML: Combined Segment Results

Mahindra &Mahindra: Standalone Results

Mahindra &Mahindra: Standalone Segment Results