Despite a 2 per cent drop in net sales over the December 2012 quarter, Mahindra & Mahindra’s operational performance in the three months ended December 2013 has been strong.
Its operating profit has shown a 14 per cent growth, with operating margin expanding from 11.2 per cent a year ago to 13.1 per cent now.
Three factors have helped the company score on this front. One is robust sale of tractors, where margins are about 5 percentage points higher than automotives.
Thanks to the good monsoons and higher minimum selling prices for crops, tractors volumes have grown 22 per cent to about 76,000 units this quarter. The farm equipment division as a whole has clocked a margin of 17.5 per cent in this period.
Secondly, benign commodity prices have also helped. Raw material costs as a percentage of sales have come down to 70 per cent from 73 per cent last year.
M&M is also a beneficiary of the good demand for pick-ups (Genio, Bolero Maxi Truck) as those are at higher price points than small commercial vehicles such as the Gio and Maxximo.
The company’s market share in the pick-up segment has moved up to 65 per cent now, from 53 per cent last year. Along with soft input prices, the better product mix has helped the automotive division margin move up by a percentage point to 9.5 per cent.
Average price hikes of 0.75 per cent in tractors and 2.1 per cent for automotives have also helped.
Outlook With the tractor industry expected to close 2013-14 with a volume growth of 18-20 per cent, M&M will continue to benefit from the demand for tractors in the next quarter. Beyond that, the scope for volumes or margin expansion may be limited as tractor growth rates are expected to settle at
8-10 per cent beginning the next fiscal year, given the high base of 2013-14.