Mahindra & Mahindra surpasses analyst estimates to mark a growth of 20 per cent in margins

India's largest Utility Vehicle (UV) maker, Mahindra & Mahindra Limited (M&M), has gone on to exceed the analyst estimates by expanding its net profit for the first quarter of current fiscal by 20 per cent. This is mainly due to the demand for its Sports Utility Vehicles (SUVs), which managed to make up for the low sales of its primary business of tractors. According to the company, the net profits of company in Q1 of present fiscal took a surge to Rs. 726 crore from Rs. 605 crore earned in same period of 2011. The net sales of the company marked an increase of 40 per cent and stood at Rs. 9,248 crore.

Launched in September, 2011 the XUV500 SUV was a major driver of the sales, during the period. In the passenger vehicle segment, including Bolero, Scorpio and Xylo, M&M marked a growth of 32 per cent by selling 58,615 units. This comes as a surprise to the analysts as both sales and profits have surged much higher than anticipated.

XUV500 has blown the competition to the pieces by effectively warding off the challenge thrown by Maruti Suzuki and Tata Motors. In the light of increasing fuel prices, slowing economy and higher interest rates, UV sales continue to march on with 90 per cent of sales contributed by diesel models. In great contrast with the 3 per cent surge marked by passenger car segment, UV segment grew by a massive 51 per cent with sales clocking at 52,725 units during the first two months of FY13.

Coming to XUV500, the car sold 32,000 units since its launch in the country with 20,000 strong pre-booking orders. M&M is now mulling over the expansion of its production capacity from 4,000 units a month to 5,000 units. According to President, Automotive and Farm Equipment Sector, Pawan Goenka, the models will continue to sell well for another year; however, he does not believe that the sluggish sales of tractors will improve any time soon.

According to the company statement, “The drought-like conditions prevailing in several (Indian) states today has only added to the risks facing domestic companies. Our near term outlook on the economy is cautious and watchful.”