M&M Q4 Results: Profit Slumps On Exceptional Item, Supply Chain Issues

Mahindra & Mahindra Ltd.’s quarterly profit fell, missing estimates, dragged down by exceptional item and supply-chain issues.

Net profit after exceptional items stood at Rs 163 crore in the January-March period, down 69% over the preceding three months, India’s biggest tractor maker said in an exchange filing.

M&M reported an exceptional item worth Rs 838.89 crore during the fourth quarter, pertaining to impairment provisions for certain long-term assets and other exposures, it said. To be sure, the company had also reported an exceptional item worth Rs 1,213.98 crore in the October-December period.

Before the exceptional item, the company’s profit stood at Rs 1,002 crore in the quarter ended March, down 43% sequentially.

A consensus of analysts tracked by Bloomberg had pegged the bottom line at Rs 1,094 crore.

Mahindra’s results include the financials of Mahindra Vehicle Manufacturers Ltd.

M&M + MVML Q4: Key Highlights (QoQ)

• Revenue fell 5% to Rs 13,338 crore, compared with the Rs 12,795-crore forecast.

• Ebitda down 18% to Rs 1,960 crore, against the projected Rs 1,865 crore.

• Ebitda margin contracted to 14.7% from 17%. Analysts had pegged the metric at 14.6%.

“Our approach of ‘walk-run-fly’ has delivered strong financial returns in FY21 .The strong margin and turnaround of global subsidiaries in FES (farm equipment sector), along with a robust automotive demand momentum through the focussed SUV strategy has set the ground for us to now accelerate to fly,” Rajesh Jejurikar, executive director-auto and farm sector at M&M, was quoted as saying in the filing. “New products and technologies, farm machinery opportunity, Krish-e and cost management sets us up for a bold, aggressive growth trajectory.”

Supply-side constraints, however, dragged M&M’s overall automotive sales by 11% over the preceding quarter to 1.08 lakh units in the January-March period. Sales of its passenger cars fell 0.54% sequentially to 52,725 units compared with a marginal decline of 0.6% decline in Maruti Suzuki India Ltd.’s shipments and 21% rise in Tata Motors Ltd.’s domestic business.

M&M’s tractors sales, too, fell 8.3% sequentially to 93,894 units in the reported quarter.

M&M has been grappling with a prolonged supply chain issue ever since the lockdown restrictions were eased last year. In December, it had warned of a global shortage of semiconductors supplied by Bosch Ltd., which hurt its production and sales when demand for cars rose on preference for personal mobility amid the pandemic, and on festive push. Its tractors and three-wheeler productions remained unaffected.

But the second Covid-19 wave and fresh lockdowns enforced in various states, coupled with a disruption in the supply of oxygen for industrial use, is expected to temporarily impact demand and supply for vehicles and tractors. Besides, on the supply side, global shortage of microprocessors (semi-conductors) continues to pose challenges to smooth production schedules.

M&M now expects volumes to fall 15-20% over preceding quarter in the three months ending June. “The revenue and profitability will be impacted in line with the fall in volumes. However, the company is taking various cost optimisation measures to limit the adverse impact,” it said in a separate exchange filing. The company, it said, is carefully reviewing the demand and supply situation and re-calibrating its operations accordingly while protecting the interest of its customers, dealers and suppliers.

Jejurikar, during an annual investor meet, said M&M is confident that demand will rebound by June-July. Tractor demand will come back by June, while auto sector demand is likely to come back by July, he said. Jejurikar, however, reiterated that concerns remain around semiconductor shortage, localised lockdowns and commodity price increase.

Separately, M&M is in discussions with an investor for selling a majority stake in Ssangyong Motor Co. as the SUV maker reassesses its investments amid the pandemic, according to a Bloomberg report. M&M in September last year said it has decided not to invest any more money into the Korean subsidiary after it failed to turn it around even nearly a decade after acquisition, and is looking to divest its stake to below 50%. Ssangyong in December filed an application before the bankruptcy court after it failed to repay loans worth Rs 680 crore to lenders.

Shares of M&M were trading 2.2% higher after the results were announced, compared with a 0.71% gain in the benchmark Nifty 50.