Mahindra & Mahindra Ltd. (M&M) and MVML said net profit for the first quarter of FY18 declined 20% on lower sales of its automobiles, mainly utility vehicles and one-time Goods & Services Tax (GST) transition impact of ₹144 crore.
For the first quarter ended June 30, 2017, M&M and Mahindra Vehicle Manufacturers Ltd. (MVML) reported a net profit of ₹766 crore against ₹955 crore in the year-earlier period.
Total income of M&M and MVML during the quarter was ₹12,540 crore ( ₹12,160 crore), up 3%.
During the quarter, automobile sales declined by 3.8% while tractor sales rose 13.2%. All its export markets, exluding Bangladesh, faced issues impacting its automobile export business, the company said.
The automobile industry was impacted due to transition to GST as vehicle sales declined in anticipation of price reduction by buyers. There were taxation problems also.
“Due to unavailability of input credit for certain taxes paid as well as due to tractors being exempt from excise duty in the earlier regime, the company, to ensure minimum impact for customers, has made a provision to support dealers in respect of duty paid of goods lying with them amounting to ₹144 crore,” said VS Parthasarathy, group chief financial officer, M&M.
“So, on a PBT level, we have taken a hit of ₹144 crore and on PAT level, a hit of ₹91 crore,” he said.
Bharat Gianani, a research analyst with Sharekhan, said the operating results were in line with expectation as the margins were impacted by higher raw material costs and GST-related dealer compensation.
“Higher depreciation and taxation led to double digit decline in net profit,” he added.
‘Reviving volumes’
Mr. Gianani said, “Going ahead, new launches in the utility vehicle and light commercial vehicle segment should revive volumes.”
“The first quarter was an eventful quarter due to BS III ban and GST transition,” said Dr.Pawan Goenka, managing director, M&M.
“Our tractor division performed well. The light commercial and heavy commercial vehicles business did reasonably well. However, we have lost market share in UV,” he said.
The company’s UV sales were down 5% compared with the year-earlier period. the same period last year.
Dr. Goenka said the company will now provide enhanced focus on the passenger vehicle business to ensure a turnaround of several models which were introduced recently. “This year, we will have several refreshes and a new vehicle will be introduced. We are also focusing on the electric vehicles business which offer vast opportunities,” he said.
In FY18, the company will introduce a multi-purpose vehicle, which is code named U321. Next year, a new compact SUV, code named S201, will be introduced to provide effective competition to growing number of rivals as well to regain its market share in the UV segment.
The company said it was confident about the future as good monsoons would fuel demand for its tractors and improvement in the overall economy would lead to demand for automobiles. “I have reasons to believe that we will see robust demand in the coming few quarters,” Dr. Goenka said.