M&M has given up on this year’s prospects as first-quarter profit is nearly wiped out

India’s top SUV and tractor maker, Mahindra and Mahindra, saw its consolidated net profit nearly wiped out and the outlook for the rest of the year is hardly any better.

The bottomline, before exceptional items, showed ₹39 crore, down 96% from a year earlier. If not for the contribution from associate businesses like insurance, IT services (Tech Mahindra), and joint ventures in financial services like the one with Manulife, M&M would have clocked a consolidated loss of nearly ₹850 crore.

M&MApril-June 2020 (YoY)

The farm equipment segment (which includes tractors) contributed around 30% to the total revenue but it still wasn’t as good as a year ago, reflecting the hollowness of the much-celebrated strength of India’s rural economy. This was visible in the earnings of Escorts, a major competitor for M&M in tractors.

The management is, expectedly, distraught. “A combination of lower incomes and heightened uncertainty is expected to drag consumer spending and business investment in F2021. It is now a foregone conclusion that the economy is set to contract during the year — the first time in 41 years” the company said in a statement .

“Tractor demand is likely to remain buoyant in coming quarters but the Utility vehicles category is showing no good sign of demand revival,” said Rajit Rajoriya, equity research associate, Angel Broking.

“The timely relaxation of the lockdown for the agricultural sector along with positive rural sentiment led to good sales numbers for tractors during the quarter despite the supply chain issues, showing a positive growth rate in May and June 2020,” the company said. However, for the entire quarter, the revenue from every major segment was less than a year ago.

Revenue from operationsGrowth %
Farm equipment-19.20%

M&M share price fell over a percent lower after the company announced its quarterly results.

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