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Informist, Monday, Nov. 4, 2024

 

By Darshan Nakhwa 

 

MUMBAI – Mahindra & Mahindra Ltd. is expected to report a mixed financial performance for the September quarter despite on-year growth in overall wholesale volumes, higher average selling price, and moderation in steel prices. While the automaker's operating profit is expected to grow 26% on year, its top line is seen up by just 6% and bottom line by 1%, as per analysts' estimates.

The Mumbai-based company's operating profit or earnings before interest, tax, depreciation, and amortisation is seen at INR 38.67 billion in Jul-Sept, as per the average of estimates from eight brokerages. The highest projection for EBITDA is INR 40.14 billion from Kotak Institutional Equities, and the lowest is INR 36.84 billion from Motilal Oswal Financial Services.

 

M&M's EBITDA margin for the September quarter is projected at 14.2% compared to 12.6% a year ago, according to the average of estimates from eight brokerages. According to Nirmal Bang Equities, the automaker's EBITDA margin is expected to expand on the back of 4% on-year growth in high-margin tractor volumes and an increase in the average selling price of automobiles. However, the increased share of farm implements will partly offset margin growth.

 

Motilal Oswal has pegged M&M's net realisation per car at INR 839,000 for Jul-Sept, and YES Securities has estimated it at INR 848,500 per unit. The company's realisation per unit was INR 803,000 in Jul-Sept last year and INR 812,000 in Apr-Jun this year, according to Motilal Oswal.

 

Brokerage Prabhudas Lilladher expects the company's EBITDA margin to expand on a year-on-year basis led by healthy performance in the farm equipment segment, good response to the new launches, and consistent ramp-up of utility vehicle capacity. At the end of June quarter, the company had a capacity to manufacture 49,000 sport utility vehicles per month, which it plans to raise to 64,000 units per month by the end of 2024-25 (Apr-Mar), and to 74,000 units per month by 2025-26. In Jul-Sept, the company also launched the five-door variant of its popular sport utility vehicle, Thar.

 

Compared to strong growth in EBITDA and EBITDA margin, M&M's net profit is expected to inch up by just 1% on year to INR 34.85 billion, according to the average of estimates from eight brokerages. The projections for bottom line by brokerages ranged from INR 29.78 billion by Nirmal Bang to INR 41.61 billion by Kotak Equities.

 

In Jul-Sept 2023, the company had registered a growth of 67% on year in net profit on account of a threefold jump in other income. Its other income included a gain of INR 2.09 billion on the transfer of identified assets and business pertaining to the Last Mile Mobility Business of automotive division of the company to Mahindra Last Mile Mobility Ltd.

 

M&M's top line for the September quarter is estimated at INR 272.18 billion, up 6% from a year ago, according to the average of estimates from eight brokerages. The highest and the lowest estimates for revenue were INR 267.55 billion by Prabhudas Lilladher and INR 275.92 billion by Nirmal Bang, respectively.

 

"We estimate a 13% year-on-year increase in revenues in Jul-Sept led by 8% on-year growth in tractor segment revenues mainly due to 4% increase in volumes and 15% on-year increase in automotive segment revenues driven by strong improvement in average selling price," Kotak Equities said in a report.

 

Even on a sequential basis, the Mahindra Group company is expected to report a mixed financial performance. Its net profit is projected to grow 33% on quarter on the back of a sharp increase in other income. According to Kotak Equities, the company's profit after tax is expected to grow by 59% on quarter due to higher other income led by the sale of land during the quarter for INR 2.1 billion and the dividend from Tech Mahindra Ltd.

 

In Jul-Sept, the company's EBITDA is seen down 4% on quarter, and EBITDA margin is expected to contract to 14.2% from 14.9% in Apr-Jun due to weaker product mix in overall sales. Its revenue from operations is expected to be flat on quarter as the impact of a 3?ll in wholesale volumes is likely to be offset by the higher average selling price.

 

The company's cost of raw materials consumed as a percentage of revenue is expected to have declined to 74.8% in Jul-Sept, from 75.6% a year ago and 73.7% in Apr-Jun, according to Motilal Oswal.

 

In Jul-Sept prices of aluminium, copper, and natural rubber rose 9-52% on year. However, prices of domestic and Chinese cold-rolled coil steel were down 5% and 20%, respectively. On a sequential basis, prices of domestic and Chinese cold-rolled coil steel, aluminium, lead and copper declined 5.5-18.2%. However, prices of natural rubber jumped up 20%, according to data from Kotak Equities. The impact of the change in prices of raw materials is usually reflected in the earnings of automakers with a lag of a quarter.

 

VOLUME GROWTH

M&M's total sales, including automobiles and tractors, rose 7% on year to 324,420 units in the September quarter. The automaker sold a total of 231,038 automobiles, including passenger and commercial vehicles, and three-wheelers, during the quarter, up 9% on year. In the farm equipment segment, it registered sales of 93,382 tractors, up 4% on year.

 

In the passenger vehicle category, the automaker sold a total of 135,962 utility vehicles in India in the September quarter, up 18% on year. Utility vehicle sales accounted entirely for the passenger vehicle despatches during the period. Currently, M&M offers sport utility vehicles such as the Thar, Scorpio, Bolero, XUV 3XO, XUV 400 and XUV 700.

 

On the commercial vehicles front, the company sold 64,511 units in India in Jul-Sept, down 6% from the year-ago period. Its sales were dragged down by lower despatches of less than 2-tonne capacity light commercial vehicles and 2.0-3.5 tonne capacity commercial vehicles. In comparison, the company's more than 3.5 tonne capacity light commercial vehicle and medium and heavy commercial vehicle sales trebled on year.

 

During the quarter, M&M also sold 22,963 three-wheelers in India, up 7% on year. The company's automobile exports inched up by 3% on year to 7,602 units in Jul-Sept.

 

M&M is scheduled to detail its earnings for the September quarter on Thursday. On Monday, shares of the company closed at INR 2,883.95 on the National Stock Exchange, up 2.4%. The company's stock had gained 10.2?ter its June quarter earnings announcement to a 52-week high of INR 3,222.1 on Sept. 27. The stock has since lost all its gains. Since Jan. 1 to date, while the benchmark Nifty 50 has risen by 10.42% and Nifty Auto by 26.61%, M&M's stock has surged 67%.

 

Following are the Jul-Sept standalone earnings estimates for the company, in INR million, based on reports from eight brokerages:

 

Brokerage	Net Sales	Net Profit	EBITDA
Elara Securities (India) Pvt Ltd	272,082	34,301	37,547
Kotak Institutional Equities	275,052	41,607	40,138
Motilal Oswal Financial Services Ltd	272,307	33,660	36,840
Nirmal Bang Equities Pvt Ltd	275,917	29,784	40,008
Nomura Equity Research	271,110	35,118	39,138
Nuvama Wealth Management Ltd	268,158	33,830	37,043
Prabhudas Lilladher Pvt Ltd	267,552	35,677	39,865
YES Securities (India) Ltd	275,261	34,851	38,745
Average	272,180	34,854	38,666

 

End

 

Edited by Ashish Shirke

 

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