Utility vehicles and tractors major Mahindra & Mahindra has reported second quarter results, which are much better than market expectations. Apart from good volume growth, analysts are particularly impressed by the 217 basis points improvement in adjusted operating margins over the previous year quarter.
For the quarter ended 30 September 2006, M&M has reported a standalone net profit of Rs386.48 crore, or Rs15.15 per share, an increase of 145.84 per cent over Rs157.21 crore reported for the same quarter of previous year. Net operating revenues for the quarter increased 30.07 per cent to Rs2,490.5 crore from Rs1,914.81 crore for the previous year quarter.
The company booked a pre-tax profit of Rs117.45 crore (Rs88.37 crore after tax) from sale of shares of subsidiary company Tech Mahindra. An amount of Rs40.39 crore (Rs26.79 crore after tax) is included in operating revenues as octroi refund. Rs25.13 crore was received from Tech Mahindra during the quarter as a special dividend declared before its IPO. Adjusted for these exceptional items, net profits have increased 55.13 per cent to Rs246.19 crore from Rs158.7 crore.
Operating profits, excluding other income, increased by 69.4 per cent to Rs396.6 crore from Rs218.18 crore a year ago. Operating margins as a percentage of net operating revenues improved considerably to 14.84 per cent from 11.39 per cent for the previous year quarter. Adjusted for the octroi refund of Rs40.39 crore, the operating profits have increased 50.89 per cent while operating margins were 13.22 per cent.
Better operating margins were a result of slower growth in input costs as compared to revenue growth. Input costs increased by 21.66 per cent over the previous year quarter. Staff costs went up by 29.97 per cent while other operating expenses increased by 41.96 per cent.
The bottom line got a further boost from higher other income, which more than doubled to Rs72.92 crore from Rs29.44 core. Nearly 75 per cent of the other income component was dividend received from group companies. Net interest income increased more than three times to Rs15.53 crore from Rs4.83 crore.
Depreciation charges for the quarter increased modestly by 7.6 per cent over the previous year quarter.
The automotive division of the company saw strong volume growth during the quarter, led by utility vehicles. The company sold a total of 29,449 units of utility vehicles during the quarter – an increase of 10.7 per cent over the previous year quarter. SUV model Scorpio continues to be the best performer with a sales growth of 20 percent. Total UV segment market share of M&M stood at 45.7 per cent during the quarter. Exports went up more than 51 per cent to 2,761 units for the quarter.
The tractors division outperformed the automotive division with a volume growth of nearly 40 per cent for the quarter. The company sold 21,801 tractors in the domestic market during the quarter for a market share of 28.7 per cent. Exports surged more than 61 per cent during the quarter. Sale of engines, including DG set engines, went up 78 per cent during the quarter.
M&M is implementing a major expansion plan though own ventures and alliances, which would see the company entering passenger car and large commercial vehicles, segment in the near future. Its JV with Renault would launch sedan model Logan by next year. M&M has de-merged its LCV business into a JV with US-based International Truck and Engine, which would also manufacture medium and heavy commercial vehicles.
The company is also strengthening its tractor business through overseas assembly plants and acquisitions. The company aims to be one of the top-5 tractor manufacturers globally before the end of this decade. M&M is also expanding its auto component business considerably through a separate subsidiary.