Despite a 9 per cent drop in net sales over the September quarter of last year, Mahindra and Mahindra’s operational performance is reasonable, considering the tough environment for the automotive industry.

The company has shown about 1-2 per cent growth in operating profit, and has expanded its operating margin from 11.4 per cent in the September 2012 quarter to 12.8 per cent now.

Three factors have aided the company. One is robust sale of tractors, where margins are 4-5 percentage points higher than automotives.

Thanks to the good monsoons and higher minimum selling prices for crops, tractor volumes have grown by 22 per cent to about 57,500 units this quarter. The farm equipment division as a whole has clocked a margin of 16.9 per cent in this period.

Secondly, commodity prices have been benign. Raw material cost as a percentage of sales has come down to 78 per cent from 81 per cent last year.

Thirdly, M&M is a beneficiary of the good demand for pick-ups (Genio, Bolero Maxi Truck), which are at higher price points than small commercial vehicles such as the Gio and Maxximo.

The company has a market share of 55-60 per cent in the pick-ups segment.

Along with soft input prices, the better product mix has helped retain the automotive division margins at 9.3 per cent.

Outlook

In the months to come, M&M will continue to benefit from the demand for tractors.

The tractor industry is expected to close 2013-14 with a volume growth of 17-18 per cent. The coming elections might give a boost to Bolero sales.

On the other hand, while in October the demand for Scorpio and XUV 500 improved after a lull, it remains to be seen if this trend will sustain.

Although prices of commodities such as steel has seen an increase in recent times, price hikes taken in October (about 0.5 per cent in automotives and Rs 3,500 per tractor) will support margins in the near-term.

>vardhini.c@thehindu.co.in

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