Despite a slowdown in tractor sales, M&M has achieved robust top line and bottom line growth (year-on-year) in the quarter ended December 2012, thanks to a 36 per cent growth in utility vehicle (UV) volumes.
The continued market preference for diesel vehicles, coupled with an improved product mix from successful launches such as the XUV 500, Rexton and Quanto (from the SsangYong stable) have helped the performance. However, the pressure of flat growth in tractor volumes during the quarter partly reflects in the operating margins.
Even though raw material cost pressures have eased, margins in the current quarter have come down to 11.2 per cent from 12.2 per cent, a year ago. While the company has had virtually no discounts in the UV and pick-up segment, tractors have seen some discounts, in line with industry levels.
Outlook
In the next few months, the challenge for tractors sales will continue. With the north-east monsoon lower than expected and the five States — Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra and Gujarat — seeing relatively weak demand, M&M expects to end FY13 with a marginal drop in tractor volumes compared with last year. This may further dampen the margins as tractors, at about 15 per cent operating margins, fetch almost double that of the company’s auto division.
UV volumes
Further, UV volume growth may start cooling off. For one, as the company enters FY14, the effect of a high base could come into play. From 50 per cent levels now, SIAM too, projects UV industry volumes to grow only by 15-17 per cent in FY14. Two, expected revision in diesel prices may dampen the demand for diesel UVs; three, although M&M will be refreshing some of its models in the next 12 months, it has no significant UV launches to kickstart volumes; and finally, with launches such as the Ertiga, Evalia and Duster, competition is heating up in the space.
For the April-December 2012 period, M&M’s market share in UVs has fell about 47.6 per cent from 56 per cent in the same period in 2011.