M&M Q3 Results: Less-Than-Expected Profit On Exceptional Item, Uncertainty On SsangYong Sale
Mahindra & Mahindra Ltd.’s quarterly profit rose but missed estimates as an exceptional item and supply chain issues masked higher tractor sales, and a recovery in demand for passenger cars in the festive season on preference for personal mobility amid the pandemic.
Net profit of India’s biggest tractor maker increased 40% year-on-year to Rs 530.9 crore in the quarter ended December, according to an exchange filing. That compares with the Rs 1,410-crore consensus estimate of analysts tracked by Bloomberg.
The company reported an exceptional item worth Rs 1,213.98 crore, pertaining to impairment provisions for certain long-term assets and other exposures, hurting the bottom line. Mahindra’s results include the financials of Mahindra Vehicle Manufacturers Ltd.
M&M + MVML Q3: Key Highlights (YoY)
- Revenue rose 14% to Rs 14,056.5 crore, compared with Rs 13,849-crore forecast.
- Ebitda up 7% to Rs 2,385.7 crore, against the projected Rs 2,063 crore.
- Ebitda margin stood at 17% against 18.5%. Analysts had pegged the metric at 16.2%.
M&M has been grappling with a prolonged supply chain issue. The company, in December, said the global shortage of semiconductors supplied by Bosch Ltd. was expected to lower its production and sales in the last quarter of the ongoing financial year. Its tractor and three-wheeler production, however, will remain unaffected.
That hurt its effort to accelerate production at a time Indian automakers—reeling with a sales slowdown even before the pandemic—tried to make up for the washout in the initial months of the lockdown. The companies bet on the festive season sale as they pushed more stocks to dealers.
Supply-side constraints, coupled with continued pressure on its commercial vehicle business, dragged M&M’s overall automotive sales by 7.6% over the preceding year to 1.22 lakh units in the quarter ended December. Sales of its passenger cars rose 8.6% year-on-year to 53,016 units in the third quarter, compared with a 13% increase in Maruti Suzuki India Ltd.’s shipments and 24% in Tata Motors Ltd.’s domestic business.
M&M’s tractors sales rose 19% over the year earlier to 1.01 lakh units in the reported quarter. The company expects tractor demand to remain robust during the coming quarter as well.
The company also said it managed to partly offset the rise in input costs through price hikes and value engineering actions.
Morgan Stanley listed M&M as its top pick among automakers, maintaining an “overweight” rating and raising price target to Rs 1,112 apiece from Rs 865.
Uncertainty Over SsangYong Sale
M&M in September last year had said more than 98% shareholders had approved the company’s decision to transfer, dilution or cessation of controlling stake in its Korean subsidiary SsangYong Motor Co. after it failed to turn it around even nearly a decade after acquisition.
SsangYong in December filed an application before the bankruptcy court after it failed to repay loans worth Rs 680 crore to lenders. It had filed an application to commence the rehabilitation process with the Seoul Bankruptcy court under the Debtor Rehabilitation and Bankruptcy Act of South Korea.
“As per the current assessment of the status, it now appears unlikely that this deal will be concluded under ARS (Autonomous Rehabilitation Support Programme),” M&M said in the filing accompanying the third-quarter earnings. “It’s understood that SYMC (SsangYong) is now preparing and plans to submit a pre-packaged rehabilitation plan which may involve capital restructuring for all creditors and shareholders.”
Shares of M&M are fluctuating between gains and losses after the results were announced compared with a 0.71% gain in the Nifty 50.