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Mahindra & Mahindra sees tractor growth falling below 5% on poor rains, cyclones

  • Co had reduced its earlier guidance of 8% industry growth to 5% in the first quarter of 2014-15)

    Mahindra & Mahindra (M&M), India's biggest tractor and utility vehicle (UV) maker, said the tractor industry growth is likely to be below 5% for the current fiscal year on account of below average and delayed monsoons, a climb down from its earlier estimate of 5-7%.

    "We were expecting a growth of about 5-7% for the tractor industry. However, sales have remained subdued in the second quarter. We will revisit our outlook for the year. It is unlikely to be around 5-7% as the second quarter was flat," said Pawan Goenka, executive director, M&M, in a conference call with analysts.

    M&M in the first quarter of this fiscal had reduced its earlier guidance of 8% industry growth to 5%. With flattish growth in the second quarter, the company expects the industry growth to decline further.

    After a double digit growth of tractor sales in 2013-14, the industry curbed its outlook to single digit growth for 2014-15 owing to untimely and below average monsoon.

    The domestic tractor industry saw a flattish growth as it sold sold 1,41,560 tractors in the second quarter (July-September) of FY15, while M&M sold 57,701 tractors in the domestic market during the quarter compared to 57,549 tractors sold in the corresponding quarter in 2013-14.

    The company however maintained its leadership position in the segment with a market share of 40.6%, down from 42.2% held in the first quarter of the current fiscal.

    A below average and delayed monsoon in some parts of the country aggravated further with crop damages due to cyclones leading to the domestic tractor industry remaining flat in Q2 FY15 as compared to Q2 FY14, the company said in a statement on Friday as it announced its Q2 results for FY15.

    The rainfall has been 12% below the average this year, however, sowing is down 2% compared to last year, the company said.

    Meanwhile, the company reported a 4.3% drop in standalone profit at Rs 947 crore for the quarter ended September 2014 compared to Rs 989.5 crore in the year-ago period. However, on a consolidated basis, M&M plus Mahindra Vehicle Manufacturers Limited (MVML) saw the net profit rose marginally by 1.7% compared to same period last year.

    "On the operating front, M&M disappointed reporting Ebitda margins of 12% (decline of 230 bps sequentially) which is below our estimate of 14.1%. Sharp increase in other expenditures impacted the margins," said Bharat Gianani, research analyst - automobile, Angel Broking.

    The entity sold 47,906 UVs during the quarter and continued its leadership position with a market share of 33.2%. However, the pressure on company's market share continued during the quarter owing to increased competition in the segment and growing preference towards compact sports utility vehicles (SUVs).

    "At present, we don't have a good product in the UV1, which is the compact SUV segment. We will launch 2 compact SUVs in the next calender year," said Goenka.

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