Mahindra Net Profit Plummets 85 Per Cent, Doesn't See Revival Soon

Auto major Mahindra on Tuesday reported a massive 85 per cent plunge in its consolidated net profit at Rs 200 crore in the quarter to December 2019 due to lingering demand crisis. The bottomline shrank so badly even as revenue fell only 4 per cent to Rs 25,303 crore, while margin improved to 14.8 per cent from 13.2 per cent, the company said. On a standalone basis also, net profit fell 73 per cent to Rs 380 crore during the reporting period while revenue declined only 6 per cent to Rs 12,120 crore. Overall sales fell 8 per cent to 1,23,353 units, as tractors declined 6 per cent to 81,453 units and exports plunged 22 per cent to 9,633 units. Against this, the overall auto industry sales fell 7 per cent till December.

The management guided towards a not-so-bright future saying the volumes will close in the red in year to March as the problem of falling demand will linger into the first half of the next fiscal as well. On a full-year basis, volume may clip at 3-5 per cent in FY21 as it expects the first half to be in the red again.

However, the management is positive on tractors in FY21 as it expects a 5 per cent volume uptick given the government focus on the rural economy and on expectation of normal monsoon.

Managing Director Pawan Goenka explained bottomline numbers are so bad because of a one-time loss of Rs 554 crore as against a one-time gain of Rs 519 crore in Q3 of FY19. On the transition to BS-VI, Goenka said already they have begun production of two models and by the end of this month it should be stopping production of BS-IV models provided the supply from the coronavirus-hit China normalises.

"As of now there is uncertainty on around 4,000 BS-IV unit, as two key components are sourced from China. But since the outbreak of the epidemics, supply has stopped. "So, if supply of these two components doesn't normalise over the next two weeks there is uncertainty, which may force us to move the Supreme Court to seeking to sell these units after the March 31 deadline as this is caused by force majeure," Goenka said.

But he was soon to add that latest reports say Chinese factories are reopen and supplies have begun on a limited scale. But we need normal supplies to meet the deadline. Goenka also said there is no impact of the coronavirus breakout on the production of BS-VI models.

He announced that BS-IV petrol models will be dearer by Rs 20,000 a unit, while diesel models will be costlier by at least Rs 1.3 lakh a unit as there is an additional input cost escalation of Rs 50,000-80,000 per unit alone. However, we hope to stagger the price increase. As a parallel growth strategy to cushion the impact of the faltering domestic market, Goenka said, they will be tapping new geographies to improve volumes.

"We are keen to enter Vietnam by the end of this year and Russia by the middle of FY22," Goenka said. On the plans to revive the struggling Korean arm Saangyong, he said they have lined up a 500 billion wons capex for the unit over the next two years. Of this 300 billion wons will go into revival, and the remaining will be used to repay the existing debt.

"By the end of March we will have financial closure for this," Goenka said, adding the unit has for long been cash-positive and "on completion of this new investment over the next two years, we hope to fully revive the business." ?

Goenka also said as part of the overall strategy, they will attempt at drawing from the R&D prowess of Saangyong and also from Ford which with it had sewed up a JV last year. The Mahindra-Ford joint venture, which has received the CCI nod, will roll out two models code-named the C-SUV and B-SUV--next fiscal. The company is also looking at whether something could be shared from Saangyoung as well.

Of the planned joint capex of Rs 18,000 crore by the JV with Ford, he said the JV has already saved Rs 1,000 crore by jointly developing the C-SUV and will be saving Rs 400 crore on B-SUV, he said, adding the objective is to save another Rs 1,000 crore, thus bring down the planned Rs 18,000 crore capex to Rs 15,000 crore over the next three years. Goenka said Mahindra will be launching four models over the next two fiscals--these code-named W601, which will hit the roads in Q3 of FY21, and Z101, which will hit the market in the first quarter of FY22.

The Mahindra counter ended 0.7 percent down at Rs 524.40 on the BSE as against the Sensex gaining 0.6 percent.