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Published on 30/05/2019 8:54:12 AM | Source: HT Media

Tractors slump in M&M Q4 show but profitability should cheer investors

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Mahindra and Mahindra’s fourth quarter performance showed all signs of a slowdown in rural markets with the company’s net profit declining 16% year-on-year to ₹969 crore, even as India’s farmers are witnessing an erosion in their income, affecting their likelihood to buy tractors.

However, the shares of the country’s biggest tractor maker barely budged on the bourses on Wednesday.

Perhaps, Mahindra’s better than expected operating profit performance has brought cheer.

The company’s Ebitda margin contracted by 160 basis points to 13.5% but was still better than analysts’ expectations. Ebitda is earnings before interest, tax, depreciation and amortization. One basis point is one-hundredth of a percentage point.

Brokerage Jefferies India Pvt. Ltd was expecting that figure to be 12.5%. Small wonder then that the stock was hardly hurt by the overall disappointing numbers.

Mahindra and Mahindra’s fourth quarter performance showed all signs of a slowdown in rural markets with the company’s net profit declining 16% year-on-year to ₹969 crore, even as India’s farmers are witnessing an erosion in their income, affecting their likelihood to buy tractors.

However, the shares of the country’s biggest tractor maker barely budged on the bourses on Wednesday.

Perhaps, Mahindra’s better than expected operating profit performance has brought cheer.

The company’s Ebitda margin contracted by 160 basis points to 13.5% but was still better than analysts’ expectations. Ebitda is earnings before interest, tax, depreciation and amortization. One basis point is one-hundredth of a percentage point.

Brokerage Jefferies India Pvt. Ltd was expecting that figure to be 12.5%. Small wonder then that the stock was hardly hurt by the overall disappointing numbers.

The results announced on Wednesday include performance of the Mahindra Vehicle Manufacturer’s Ltd unit. The subsidiary will merge itself with Mahindra, the company said Wednesday.

Mahindra sold 14.7% less tractors in the fourth quarter than it did a year ago. Revenue from farm equipment services fell 13.7% to ₹3,206 crore.

The sharp slowdown was expected by investors given the rural distress witnessed over the last one year.

The question is whether this will persist. The growth in tractor business is unlikely to be more than 5% in the current fiscal year if the forecast of a monsoon that is marginally below normal is taken into account, the company said.

The company’s passenger vehicles and commercial vehicles, too, did not shine because of the deceleration in consumption that the auto industry has been battling for many months. However, it did well in comparison to the tractor segment and to some extent compensated for the dismal tractor sales.


Passenger vehicle volumes increased by 7%, while revenue increased by 4.7%.

This was on the back of the launch of new vehicles, including the Mahindra XUV 300—the automaker’s latest offering in the compact sports-utility vehicle segment.

Consumers have tightened their purses in the wake of the liquidity crunch faced by some non-banking financial companies since September. This has affected consumer demand for automobiles in general, including those of Mahindra.

Mahindra shares have as such underperformed the Nifty 100 index in the past one year. The valuations, however, are not demanding. The stock trades at 14 times estimated earnings for financial year 2020, according to Bloomberg. The fortunes of Mahindra—and of its peers—now hinge on how swiftly the government invigorates consumption and resolves the liquidity logjams among non-bank lenders.


Investors are thus likely to be cautious until meaningful signs of demand revival are visible.