News Analysis

M&M: Tractors in the driver’s seat

Parvatha Vardhini C BL Research Bureau | Updated on June 13, 2020 Published on June 12, 2020

Tractors could continue to drive volumes and profits for the company domestically   -  REUTERS

Even as Mahindra & Mahindra (including MVML) posted a loss of ₹3,255 crore for the quarter ended March 2020 (profit of ₹969 core in the March 2019 quarter), the stock moved up to close 7 per cent higher on Friday. There are two main reasons for this.

For one, about 80 per cent of this loss (₹2,719 crore) came from the write down of investment in South Korea-based vehicle maker, SsangYong and M&M’s electric scooter and bike business in North America, GenZe.

Over the next one year, the company will be reviewing its investments across loss–making subsidiaries /entities and taking suitable action. This is good news for investors as losses from international subsidiaries have ballooned over the last few years – from ₹53 crore in FY17 to ₹5,257 crore by FY20. Secondly, on the domestic front, in what has been a tough three months, the farm equipment (tractor) segment has come to the rescue of the company. While total domestic sales volumes (tractors and utility vehicles) dropped by 35 per cent in this quarter over the same period last year, domestic tractor volumes actually grew by about 1.8 per cent. But for the impact of Covid-19, domestic tractor sales would have moved up by a much sharper 26 per cent, according to the company.

The relatively better performance of the farm equipment segment had a positive impact at the operating level. Thus, despite a 34 per cent fall in revenues to ₹9,005 crore, and a 34 per cent fall in operating profits, operating margins came in resilient at 13.6 per cent, a tad better than the 13.5 per cent recorded a year ago. Farm equipment contributed to a little over one-third of the revenues in the quarter, but three-fourths of the profits. The segmental margins came in at robust 17.6 per cent, compared to a mere 3 per cent for the auto segment.

Outlook

In the months to come, tractors could continue to drive volumes and profits for the company domestically. Rural demand is expected to remain sanguine, thanks to lower impact of the pandemic as well as the optimistic outlook for the agricultural sector.

Normal monsoons are a positive. Over 90 per cent of the farm segment dealers have restarted business after the lockdown and M&M’s plants are operating at over 80 per cent capacity currently. Already in May 2020, M&M sold two per cent more tractors than in May 2019.

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Published on June 12, 2020
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