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  • Mahindra & Mahindra

    12-Feb-2019 | 12:10

    Mahindra and Mahindra (M&M) posted 7% rise in net profit to Rs 1395.96 crore on 12% rise in topline to Rs 12,895 crore for the third quarter ended Dec 2018. Big rise in other income coupled with lower tax provision helped fuel the bottomline growth during the quarter.

    Total auto sales (passenger and commercial vehicles) during the quarter improved 10% to 1.33 lakh units while tractor sales increased 13% yoy to 87,036units.

    Mahindra Vehicle Manufacturers Limited (MVML), located at Chakan near Pune, was set up as a 100% subsidiary of the company with a view to sourcing contemporary products for expanding the market offerings of the company. Hence, it is a critical part of its business and only the combined results of the company and MVML will provide a comprehensive view of companys performance.

    Quarter Performance:

    Operating Margin for the combined entity in the quarter endedDec2018 was 13.2% as compared to 14.7% in last Q3. Operating profitwas 1% higherat Rs 1702.85crore. Increase in raw material cost impacted margins. Raw material cost (as a % to sales, net of stock) rose 300 bps at 69.1%. Employee expensesfell 40 bps to 6.6%. Other expenses (all as a % to sales, net of stock) fell 100 bps to 11%.

    Other income was 233%higher at Rs 342.28 crore. Interest cost decreased by 19% to Rs 35.27crore. The depreciation cost rose 25%at Rs 505.36crore.

    Thereafter, PBT before EO rose 12% to Rs 1504.5 crore. The company incurred an EO expense of Rs 80 crore during the quarter vis a vis income of Rs 385.75 crore during the quarter. Exceptional items representprovision for impairment of certain long-terminvestments carried at cost.PBT after EO fell 18% at Rs 1424.5crore. PAT settled 7% higherat Rs 1395.96crore after 93% drop in tax provision at Rs 28.54crore (2250 bps dropin tax rate).

    The PBIT margin of auto segment was at 5.8% (vis a vis 8.4%) thereby leading to 23% drop in PBIT at Rs 460.79crore. Farm equipment segments PBIT margin waslower at 19% (vis a vis 20%) leading to 6% risein PBIT at Rs 888.14crore. Revenues from auto and FES sector grew 11% and 13% respectively.

    For Q3 F2019, the Indian auto industry (excluding two wheelers) posted a flat performance with a de-growthof 0.3%. This flattening of growth is driven by the Passenger Vehicle industry reporting a de-growth of 0.8%(UV segment de-growing 2.9%) and the MHCV goods industry de-growing by 8.2%. The de-growth in theMHCV industry is primarily due to the implementation of new axle loading norms, which has created surpluscapacity in the short term, resulting in reduction or temporary suspension of fleet purchase plans bytransporters. Passenger vehicle sales for the festive season (Sep+Oct+Nov) were not up to industryexpectation primarily due to softening of urban demand. The urban sentiment was subdued largely on accountof an uncertain economic scenario arising from the dollar rate movement, fuel prices and stock marketperformance. At the same time, the rural sentiment was positive, driven by three consecutive years of analmost normal monsoon, five consecutive good harvests, continued government focus on agricultural & ruraldevelopment and sustained investment in infrastructure and road projects.

    In Q3 F2019, the total domestic automotive volume for M&M grew by 9.6% with the LCV< 2T (minitruck segment) and the LCV 2-3.5T Pik-Up segment growing by 37.5% and 14.4% respectively over thecorresponding quarter previous year. The Company exported 9,652 vehicles during the quarter, agrowth of 36.6% over the corresponding quarter previous year.

    The domestic tractor industry witnessed a growth of 19.2% with its highest ever Q3 sales of 2,17,054 tractorsin Q3 F2019 against 1,82,133 tractors sold during Q3 F2018 on account of the festive season. M&M sold 87,036 tractors in Q3 F2019 as compared with 76,943 tractors sold in the corresponding quarter previousyear, a growth of 13.1%.

    Nine Month Performance:

    The company posted 28% rise in net profit to Rs 4431.93 crore on 14% rise in topline to Rs 39,040.33 crore for the first nine months ended Dec 2018. Big rise in other income coupled with lower tax provision helped fuel the bottomline growth during the period.

    Total auto sales (passenger and commercial vehicles) during 9M FY19improved 13% to 4.33 lakh units while tractor sales increased 9% yoy to 2,48,423 units.

    Operating Margin for the combined entity during 9MFY19 was 14.5% as compared to 14.7% in last 9MFY18. Operating profit was 12% higher at Rs 5662.2crore. Increase in raw material cost impacted margins. Raw material cost (as a % to sales, net of stock) rose 140 bps at 68%. Employee expenses fell 60 bps to 6.7%. Other expenses (all as a % to sales, net of stock) fell 80 bps to 10.9%.

    Other income was 76% higher at Rs 1383 crore. Interest cost decreased by 16% to Rs 116.3crore. The depreciation cost rose 21% at Rs 1433.38crore.

    Thereafter, PBT before EO rose 22% to Rs 5495.55 crore. The company incurred an EO income of Rs 82.03 crore during the period vis a vis Rs 385.75 crore last year. Exceptional items represent gain on sale offset by impairment of certain long-terminvestments carried at cost. PBT after EO rose 14% at Rs 5577 crore. PAT settled 28% higher at Rs 4432 crore after 20% drop in tax provision at Rs 1145.65 crore (860 bps drop in tax rate).

    The PBIT margin of auto segment was at 7.7% (vis a vis 8.7%) thereby leading to 1% rise in PBIT at Rs 1882 crore. Farm equipment segments PBIT margin was higher at 20.1% (vis a vis 20%) leading to 13% risein PBIT at Rs 2746crore. Revenues from auto and FES sector grew 14% and 13% respectively.

    Outlook:

    Indias GDP growth slowed down to 7.1 % YoY in Q2 F2019, after four consecutive quarters of acceleration,weighed down by moderation in private consumption and a drag from net exports. However, Gross fixedcapital formation has been a redeeming feature and clocked double-digit growth for the third consecutivequarter in Q2, on the back of public spending on highways and rural infrastructure. Growth in government finalconsumption expenditure, buoyed by higher government spending has been supportive and remains the keydriver of growth. Importantly, the interim budget has announced PM-KISAN- an income support scheme forfarmers owning up to 2 hectares — about 120 million households — who would receive income support worth~Rs 6,000 a year. This should buoy farmer incomes and support rural consumption. Improving credit growthand liquidity conditions should also help give a fillip to growth.

    Global expansion has weakened and risks to global growth have tilted to the downside. Escalation of tradetensions beyond those already anticipated and tightening of financial conditions are a key source of risk tothe outlook. One must also remain watchful of potential triggers including a no-deal Brexit and a greater-thanenvisagedslowdown in China.

    M&M stockis currently trading around Rs 653 at BSE.

    M&M and MVML: Combined Segment Results 

     

    1812(3)1712(3)Var.(%)1812(6)1712(6)Var(%)1803(12)1703(12)Var.(%)
    Segment Revenue
    Automotive Segment7914.757112.611124393.4521447.501430514.927180.5112
    Farm Equipment Sector4633.824098.341313668.7712087.981315804.113007.2422
    Others444.79368.24211255.481121.47121864.261708.519
    Total Segment Revenue12993.3611579.191239317.7034656.951348183.2041896.2615
    Less : Inter-Segment Revenue100.8687.5015277.37268.353605.8518.417
    Net Sales12892.5011491.691239040.3334388.601447577.3641377.8615
    Segment Results
    (after EO)
    Automotive Segment460.79597.59-231882.081869.4112871.642161.6633
    Farm Equipment Sector888.14838.5862746.422421.98133145.372561.6823
    Others14.09-2.32-70743.1927.695620.48-378.5-105
    Total Segment Results1363.021433.85-54671.694319.0886037.494344.8439
    add/Less:#DIV/0!
    Interest Expense (Net)-35.27-43.45-19116.3138.34-16188.2242.55-22
    Other Unallocable Income Net Off Unallocable (Expenditure)96.75340.34-721022.19714.5843-765.98-1139.71-33
    #DIV/0!
    Total PAT1495.041817.64-185577.584895.32146615.27524226
    Capital Employed
    (Segment Assets Less Segment Liabilities)
    Automotive Segment9978.679462.1859978.679462.1858104.278676.94-7
    Farm Equipment Sector4186.083201.94314186.083201.94312936.112977.61-1
    Others506.52427.0919506.52427.0919535.22364.447
    Total CE14671.2713091.211214671.2713091.211211575.612018.95-4
    LP: Loss To Profit; 
    PL: Profit To Loss
    Var. (%) Exceeding 999 Has Been Truncated To 999
    EO: Extraordinary Item
    Figures In Rs Crore
    Source: Capitaline Corporate Database

    M&M and MVML: Combined Results

     

    Particulars1812(3)1712(3)Var.(%)1812(9)1712(9)Var(%)1803(12)1703(12)Var.(%)
    Total Operating Income12892.511491.691239040.3334388.61447577.3641377.6615
    OPM(%)13.214.714.514.714.813.1
    OP1702.91690.915662.25048.4127043.45404.030
    Other Income342.28102.782331382.99785.8176951.711206.42-21
    PBIDT2045.11793.6147045.25834.2217995.16610.421
    Interest35.2743.45-19116.3138.34-16188.2242.55-22
    PBDT2009.861750.19156928.935695.9227806.936367.8223
    Depreciation505.36405.2251433.381186.34211625.371674.49-3
    PBT before forex gain/loss1504.501344.99125495.554509.56226181.564693.3332
    Forex gain/loss#DIV/0!#DIV/0!#DIV/0!
    PBT Before EO1504.501344.99125495.554509.56226181.564693.3332
    EO-80.00385.75PL82.03385.75-79433.61548.47-21
    PBT after EO1424.501730.74-185577.584895.31146615.175241.826
    Tax provision^28.54425.02-931145.651426.97-201991.951318.1351
    PAT1395.961305.7274431.933468.34284623.223923.6718
    Other comprehensive income
    Net Profit
    EPS*47.432.646.734.234.828.3
    * Annualized On Current Equity Of Rs 621.6 Crore.
    Face Value: Rs 5
    ^ Tax Includes Provision For Current Tax, Deferred Tax, Fringe Benefit Tax And Net Of Reversals/Credit
    Var. (%) Exceeding 999 Has Been Truncated To 999
    LP: Loss To Profit PL: Profit To Loss
    EO: Extraordinary Items
    EPS Is Calculated After Excluding EO And Relevant Tax
    Figures In Rs Crore
    Source: Capitaline Corporate Database

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