At a time when the auto industry is going through a deterrent downturn, Mahindra has managed to sustain growth in its first quarter profits in the current fiscal year. The company (Mahindra + MVML) has recorded a healthy year-on-year (YoY) growth of 80 per cent in profit after tax (PAT) and after exceptional items (EI) at ₹ 2260 crore as compared to ₹ 1257 crore which it recorded in the first quarter last year. However, a massive gain of ₹ 1367.05 crore from exceptional items has added to the overall PAT, helping the growth. The one time gain is attributed to the sale of shares of M&M Benefit Trust and buyback gains on transfer of long term investments.
If we exclude exceptional items, the company's PAT has witnessed a decline of 26 per cent at Rs 918 crore in Q1 FY2020 as compared to ₹ 1238 crore which it recorded in the same period last year. Mahindra's total revenue (revenue from operations + other income) in the first quarter of this fiscal year is ₹ 12,997 crore which is a de-growth of 4 per cent when compared to ₹ 13, 551 crore which it recorded in the Q1 FY2019. Its operating margin (OPM) has also slipped to 14 per cent from 15.8 per cent.
Mahindra's standalone profit in the first quarter including exceptional items stood at ₹ 2314 crore as compared to ₹ 1221 crore which is a growth of 89.51 per cent. If we exclude exceptional items, it has recorded a decline in standalone profit of 18.91 per cent at ₹ 973 crore as compared to ₹ 1200 crore which it recorded in the same quarter last year. The net revenue of the standalone business stood at ₹ 13,242 crore as compared to ₹ 13,785 crore, a decline of 3.93 per cent. Mahindra Group's Q1 consolidated PAT after non-controlling interest and after exceptional items has gone down by 46.5 per cent at ₹ 914 crore as compared to ₹ 1707 crore in the corresponding period last year. Group's consolidated revenue was flat at ₹ 26,289 crore as compared to ₹ 26,261 crore in Q1 last year.Mahindra's overall sales in July witnessed a slump of 15 per cent selling 40,142 units as compared to 47,199 units in the same period last year.
In the same quarter, the company has sold 123,690 passenger vehicles as compared to 130,484 PVs which were sold in Q1 last year which is a sales decline of 5 per cent. Sales in the farm sector (Tractors) slumped by 15 per cent at 82,013 units compared to 96,527 units which were sold in Q1 FY2019. Mahindra's exports in the same period have gone down by 14 per cent at 10,923 units as compared to 12,730 units which it exported in the same period last year.
Speaking on the sales outlook, the company said in a statement, "Domestically, data broadly paints a picture of subdued demand, notably in private consumption with firms and households continuing to hold back spending. The RBI has also scaled down the projection of GDP growth for 2019-20 to 7.0 per cent from 7.2 per cent earlier. Monsoon, which is crucial for farm output and growth, has played catch up lately, thanks to copious July rainfall, after a delayed and patchy start. The India Meteorological Department (IMD) has forecast a zero-deficit monsoon in the second half of season, which bodes well for cumulative rainfall as well as Kharif acreage. The resultant precipitation and soil moisture could also turn out to be positive for Rabi crops. The RBI has cut policy rates by 75bps thus far and is likely to remain accommodative. The lagged effect of interest rate cuts, liquidity infusion and targeted fiscal spending post budget, especially government actions on improving incomes for farmers, cash transfers and sops for affordable housing, could provide support to growth going forward. However, given the current challenging global and domestic growth environment, a concerted policy effort will be required to prop sentiment, put a floor under consumption and revive growth."
Mahindra is not the only company who has been demanding policy support from the government. At a time when the industry is witnessing a prolonged slowdown, all automakers along with industry bodies like the Society of Indian Automobile Manufacturers (SIAM), Federation Of Automobile Dealers Association (FADA) and Auto Component Manufacturers Association (ACMA) have demanded to cut GST rates on passenger vehicles along with coming up with policies to improve the liquidity flow in the country. The measures are required to improve the credit availability and cash crunch situation in the country which in-turn would motivate car buyers and can help to uplift auto sales. Tax reduction is also required to absorb the price increase of vehicles which is likely to happen after the new emission norm kicks in.