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Mahindra & Mahindra sees tractor sales slowing on monsoon delay

Saturday, 9 August 2014 - 7:50am IST | Place: Mumbai | Agency: dna

Industry-wide sales drop 1.2% in first quarter, co says overall tractor segment may grow 5% this year against its earlier estimate of 8%

Mahindra & Mahindra (M&M), the country's biggest utility vehicle and tractor maker, on Friday revised the tractor industry growth estimate on account of delay in monsoon.

The company said the tractor industry may grow by 5% in the current fiscal as compared with 8% growth target shared by the company in the beginning of this fiscal.

Crop damage due to unseasonal rains in some parts of India in March coupled with deficient monsoon in June led to marginal de-growth of 1.2% in the domestic tractor industry in the first quarter of this fiscal.

M&M, which reported its April-June quarter results on Friday, saw a flat growth in tractor sales as it sold 72,166 tractors in the domestic market as compared to 71,696 tractors sold in Q1 previous year.

Delay in rains led to decline in sowing in the country, which is down by 18%, company said.

It, however, sees sales picking up in the second half of the year.

The company maintained its leadership in the tractor segment, with a market share of 42.2% for the reporting quarter, as against 41.4% in Q1 of the previous year.

Its net profit for the June quarter declined by 5.98% at Rs 881.78 crore on a standalone basis as against Rs 937.91 crore posted a year ago.

Standalone net sales during the April-June quarter declined marginally to Rs 10,597.07 crore from Rs 10,607.27 crore.

"It was a difficult quarter for passenger vehicles and tractors segments," said Pawan Goenka, president for automotive and farm equipments sectors for M&M.

"We are now seeing some green shoots in the economy, with monsoon being a small cause of worry," said V S Parthasarathy, chief financial officer, M&M.

Increasing competition in utility vehicle (UV) and sports utility vehicle (SUV) space led to a decline in volumes for the company during the quarter. It sold 52180 UVs during the quarter, reporting a decline of 8% over the year-ago period.

The company said it would launch five completely new products in the next 15 months.

M&M has also lined up new launches in other divisions. The company will unveil a new scooter and new tractor platform, going ahead.

Despite muted sales, M&M reported an increase in operating margins to 14.3% as compared with 13.8% in the year-ago period on account of stable commodity prices and better product mix.

"We were not very aggressive in giving incentives on sales of our vehicles," said Goenka, while talking about margins.

"M&M continues to face pressure on UV business, led by weak industry demand and higher competitive pressures. Recent hailstorms and delay in monsoon pose risks to our 5% tractor growth forecast for fiscal 2015," said Rahul Shah, vice-president - equity advisory group, Motilal Oswal Securities.

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