The Hindu Business Line : Costlier inputs, low tractor sales pull M&M Q4 net down

Focus on cost cutting: Mr Anand Mahindra (right), Vice-Chairman & Managing Director, Mahindra & Mahindra Ltd, and Mr Bharat Doshi, Executive Director & Group CFO, at a press conference in Mumbai on Wednesday. —

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Mumbai, May 28 India’s biggest tractor maker Mahindra & Mahindra Ltd reported a 6.4 per cent slide in its standalone net profit for the quarter ended March 31, 2008, compared with the year-ago period, in the wake of spiralling prices of raw materials, especially steel, and lower tractor sales.

The company is bracing up for a “more challenging year” ahead, as raw material prices are expected to further rise by about 10 to 12 per cent. The tractor major’s consumption of raw materials increased to Rs 1,950.19 crore during the quarter from Rs 1,675.29 crore in the corresponding quarter of the previous fiscal.

The board of directors of the company, which met on Wednesday, has recommended a dividend of 115 per cent (Rs 11.50 per share), which will absorb Rs 321.09 crore, inclusive of tax.

The company said it incurred a loss of Rs 12.92 crore (net of tax Rs 6.66 crore) due to marking-to-market foreign exchange contracts.

Bolero push

Mr Anand Mahindra, Vice-Chairman and Managing director of the company, said the success of the refreshed Bolero model and the new VLX variant of Scorpio helped the company grow its volumes in the automotive sector. The Bolero brand sales crossed the 50,000 mark during the year.

On a consolidated basis, M&M posted a net profit of Rs 1,571.12 crore on sales of Rs 23,774.79 crore for the year against a net profit of Rs 1,497.15 crore on sales of Rs 17,589.32 crore in 2006-07.Mr Bharat Doshi, Executive Director and group CFO, indicated that further upward revision of tractor prices during the current fiscal was inevitable, as commodity prices continued their northward march. Last fiscal, the company had increased prices of its tractors by about Rs 16,000 each, with raw material costs increasing by about the same amount.

Expecting raw material prices to further rise by about 10 to 12 per cent, he, however, said the entire burden will not be passed on to the consumer, as the company was engaged in cost-cutting measures. “We will be constrained to pass on as much (of the burden) as we can,” he said, adding that with the domestic economic environment deteriorating significantly in recent months and the US and European economies slowing down, the current fiscal “is clearly going to be a challenging one.”

Capital Expenditure

The company has drawn up a capital expenditure programme of Rs 2,000 crore for the current fiscal. “This will be used in our upcoming Chakan plant and for bringing out new products,” Mr Doshi said.

On the domestic tractor industry, the company said that during the last fiscal, tractor sales in the domestic market was 3.02 lakh, as against 3.18 lakh in the previous year, marking a 5.1 per cent decline. “High interest rates and more stringent lending norms were the adverse factors that contributed to this trend,” it said.

M&M sold 90,509 tractors during the year, as against 95,006 last year, a decline of 4.7 per cent. The company’s shares of face value Rs 10 closed marginally down on the NSE on Wednesday at Rs 641.50, from Tuesday’s close of Rs 646.45.