M&M lines up Rs5,800 crore capex for 3 years; to launch 8 vehicles

Mahindra and Mahindra (M&M), the country’s largest tractor and sports utility vehicle manufacturer, has projected a capital expenditure of Rs5,800 crore on a consolidated basis for the next three years.

Out of the total capex,  Rs800 crore will be used for Mahindra Vehicle Manufacturing Ltd. M&M will raise the funds through a mix of options such as equity dilution and cash in hand, said the company while announcing the financial result for fiscal 2011.

It plans to launch eight vehicles during the current fiscal, which include the much awaited global SUV, Reva NXR (full-fledged four-seater electric car). The company is also looking at recalibrating its motorcycle brand Stallio by end of this year, whose production it stopped due to some technical issues.

The company on Monday reported a 6.5% increase in net profit for the three months ended March 31 to Rs606.5 crore year on year.
For the fiscal ended March 31, the company’s net profit rose 27.5% to Rs2,662 crore, while sales grew 26% to Rs23,192 crore year on year.

M&M’s operating margins dipped to 14.71% in fiscal 2011 as against 15.89% in fiscal 2010. M&M’s shares fell 5.9% after the result announcement.

Bharat Doshi, chief financial officer of M&M, said, “There is a pressure on margins due to raw material costs and we expect the commodity prices to go up further.”

On rising commodity prices, Pawan Goenka, president for automotive and farm equipment sector at M&M, said, “Commodity prices went up by 6-7% for vehicles and 8-9% for tractors. We did pass on a bulk of the price increase, but not everything. The overall hit on the margins is one of the lowest in the industry and has been managed well internally.”

The automaker expects the demand for passenger cars and tractors to remain moderate for fiscal 2012 on account of rising interest rates and oil prices. “At SIAM (Society of Indian Automobile Manufacturers) we had forecast passenger vehicle growth at 16-18%; right now my current estimate is slightly lower than the SIAM estimates. We are looking at 14-16% growth in passenger vehicle growth and 12-14% in utility vehicles. We expect commercial vehicles to grow at about 12-14%. Tractor industry is expected to grow by 11-12% this year, which is lower than 20% growth in the last year,” said Goenka.

On the basis on the current scenario, M&M expects the economical environment to remain challenging with lower GDP rate. The liquidity will remain tight as oil prices and interest rates continue to grow, it feels.

“The results are in line with our expectations. We were expecting compression in margins due to rising input costs and further compression is expected in the coming quarters. The moderation in the overall auto industry will certainly hit company’s sales, including tractors,” said Amit Bagaria, research analyst, Angel Broking.

In the current year all the products in the company’s utility vehicle segment continued to do well. The company sold a total of 230,110 vehicles in fiscal with a market share of 60.9%.