M&M’s Profit Grows By 30%

The Indian automobile industry has been facing the brunt of poor macroeconomic conditions since the last few quarters, with the situation worsening since the beginning of FY13. Overall, the demand has been low across the board, except for a few distinct segments. Among the segments seeing a robust demand are Light Commercial Vehicles (LCV) and Utility Vehicles (UV). M&M is present in both these segments and has thus benefited in the quarter even as the industry suffers.

Over Q3FY13, M&M’s total sales increased by 17.51% YoY. This growth was boosted by the 36% YoY growth seen in UVs. They contributed to 48% of the company’s sales and thus helped the company perform better. New launches have helped M&M in the recent times to outperform its peers. The success of the XUV500 and the Quanto has been evident from its sales figures. It also recently launched the Ssangyong Rexton, positioned in the luxury SUV segment. This model has received a good response so far.

Although M&M has outperformed its competitors in the passenger vehicles segment, the performance of Mahindra Navistar continues to weigh on the company. In thh December 2012 quarter, Medium and Heavy Commercial Vehicles (M&HCV) sales of the company were lowered by 27.06% on a yearly basis. At the same time, LCVs continued to support the growth in commercial vehicles. LCV sales grew by 10.94% in the quarter providing for a strong support to the company’s CV business.

Due to the delayed monsoons and high interest rates, M&M’s tractor sales were low in this December quarter. Overall, the Farm Equipment Sales (FES) declined by 1.59% YoY. But the performance of the company in other segments has been good enough to reverse this situation.

This has been reflected in the company’s Q3FY13 results, which had a revenues growth of 24.73% to Rs 10242.57 crore, on a yearly basis. There was some pressure on the EBITDA margin which declined by32 basis points. Although there was a tremendous strain on the margins due to an increase in raw material costs, the company managed it well by only showing minor decline. M&M’s net profit increased by 29.61% to Rs 91.95 crore in Q3FY13 on a yearly basis.

Having looked at the financials posted by the automobile company in this quarter, it has surely shown resilience and sustainability considering the overall situation of the industry. We have a positive outlook on the company’s performance because of its new product launches and the potential of value unlocking from its subsidiary companies.

An improvement in the macroeconomic situation would result in even better results for M&M. We thus recommend investors to hold the stock for a longer duration to garner healthier returns.