Mahindra & Mahindra Q2 net profit falls, shares drop by 7%

Thursday 17 November 2011, 10:31 AM by

Mahindra & Mahindra, India's largest utility vehicle maker, recently registered quarterly earnings, which was lower than the figures envisaged earlier. The discouraging results have come despite of robust sales growth and frantic economic conditions that has caused its shares to drop as much as 7 per cent.

Mahindra, whose who is actively involved in selling tractors, said that its net profit, in the segment, for July-September fell to Rs. 7.37 billion or $146.9 million, as against Rs. 7.58 billion a year ago. This can be attributed primarily due to a foreign exchange loss.

The profit emerged out much lower than an estimate of Rs. 7.84 billion by Thomson Reuters Smart Estimate.

However, the net sales witnessed a considerable hike of 37.6 per cent at Rs. 73.07 billion, in a quarter that has brought bad news for most automobile companies.

The company incurred a foreign exchange net loss of Rs. 320 million following the nosedive in the value of rupee during the September end quarter. Subsequently, its overseas loans, largely due for repayment in 2016, had to be revised. The rupee tumbled by 8.8 per cent against the dollar in the July-September quarter.

"The company could maintain its profits despite the relentless increase in material costs due to good volume performance by both vehicle and tractors in a difficult market and a tight control on expenses," Mahindra & Mahindra said in a statement.

The sales of passenger utility vehicles, which include Scorpio and the recently launched XUV500, grew by 14.2 per cent at 47,523 units. The domestic tractor sales swelled by 28.2 per cent, in the reporting quarter, at 54,585 units.

Owing to the noticeable increase in labour costs, which has compelled farmers to switch to machinery, the tractor sales in India have risen of late.

At present, the car sales has been struggling to bring itself on track as it declined by 23.8 per cent in October, in India, which turns out to be the biggest per cent drop since December 2000. Factors like higher interest rates and vehicle costs also contribute towards the deteriorating trend in the market. For Maruti Suzuki, however, the crippling labour unrest has been responsible for the sales going half.

Mahindra said that the economic conditions do not suit the businesses in any way this year. This may be the result of global macroeconomic environment, rising interest rates, volatile capital flows and exchange rates, high inflation and regulatory uncertainty.

Mahindra's shares has come down by 1.6 per cent so far this year, compared with a nearly 12.5 per cent drop in the sector index and a 16.5 per cent fall in the main index.

Thus, car makers have to undertake effective steps in order to negate the depressing outcomes that have left the auto industry limping.

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