M&M Q3 Net Up 14.5%, Misses Estimates On One-time Charge

Profit in the three months ended 31 December rose to ₹1,528 crore, from ₹1335 crore a year earlier, missing the ₹1,746 crore consensus estimate in a Bloomberg poll of analysts. Revenue at the maker of Bolero and XUV700 SUVs climbed 41% from a year earlier in the December quarter to ₹21,654 crore.

A one-time impairment provision of ₹629 crore, of which ₹501 crore was towards re-evaluation of the company’s truck and bus division, impacted quarterly net profit.

M&M had earlier classified its truck and bus business as a category ‘C’ company, with an unclear path to profitability. “We did a lot of detailed evaluation of the truck and bus division and finally came to the conclusion that it’s a strong business, and with the products we have we can actually grow and generate enough return on capital. But as we completed that assessment, we also realized the carrying value of the assets did not reflect the reality," Anish Shah, managing director and chief executive, Mahindra Group, said at a post-earnings press conference.

Shah expects trucks and buses to generate 15-18% return-on-equity in the next five years. On a consolidated basis, M&M witnessed a one-time exceptional gain from a 30% equity divestment in its wholly-owned unit, Mahindra Susten, and sale of land in the Kandivali suburb of Mumbai for ₹483.8 crore.

Shah said the transactions were “planned" and therefore, the company may report such developments as core business gains, instead of gains from exceptional items, in the future.

“We are planning for gains in our investment or growth gems, and we will continue to see gains in some of them over the years. Therefore, in the future, we are looking at our accounting practice to see whether we can report them not as exceptional items, but as part of what we drive as a business", he added.

M&M’s revenue growth was driven by its automotive business and stronger-than-expected performance in the farm equipment sector. On a sequential basis, the auto segment accounted for 68% of revenue, compared to 71% in the September quarter, while the farm segment contributed 29% compared to 26% in the September quarter.

The company expects strong traction for its new SUV launches, including the XUV700, Scorpio-N, Thar rear-wheel drive and its maiden electric SUV, the XUV400, as it moves to meet an orderbook of 266,000 vehicles. However, supply chain disruptions led to airbag sensor shortages, impacting a few models.

From 1 April, M&M will have to meet BS-VI phase II norms, which mandate automakers to lower particulate matter and carbon emissions further. “We will meet the 1 April deadline, and we see no risk of penalties," said Rajesh Jejurikar, executive director, auto and farm equipment sector. “The price hike as a result of the new norms will not be very significant and will likely be ₹12,000 - 20,000 depending on the model."

Mahindra has also raised its growth outlook for tractors to 10% for 2022-2023, from its earlier estimates of 5%, on the back of improving terms of trade for farmers, high government spending in the second half of the year, and four years of normal monsoon. The company expects tractor volumes to breach the 900,000 unit mark by the end of this fiscal year.

Shares of M&M closed 0.67% lower at ₹1,362.95 apiece on the NSE, underperforming a 0.21% decline in the benchmark Nifty index.