InvestorQ : Why did Mahindra & Mahindra report such a sharp fall in profits in the Jun-20 quarter?
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Why did Mahindra & Mahindra report such a sharp fall in profits in the Jun-20 quarter?

Answer
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2 months ago


India’s largest tractor manufacturer, Mahindra & Mahindra, reported a 97% fall in net profits at Rs.67.79 crore for the Jun-20 quarter. This includes a one-time gain of Rs.29 crore, which means that without that gain, the fall would have been much sharper. Even total revenues for the Jun-20 quarter fell by 56% to Rs.5589 crore.

The impact was visible in the volumes of the company. For example, Mahindra sold 27,565 vehicles in the Jun-20 quarter, representing a fall of 78%. Even tractor sales were lower but the drop was much lower at just 22% on a YOY basis. That is because, the agricultural sector has been rather immune to the pandemic and rural demand has not been really impacted.

The problems were visible at a macro level in the auto industry with the auto industry overall seeing a fall of 82% in volumes in the Jun-20 quarter. This was largely due to the zero sales in the month of April which saw numbers muted despite a gradual pick-up in the months of May and June. However, brands with strong rural traction did fairly well.

The pandemic led to a sharp fall in the OPM from 14% to just 10.3%. In fact, EBITDA fell by 68% in the Jun-20 quarter to Rs.573 crore. This was largely because the top line was not sufficient to cover the fixed costs leading to the negative impact on OPMs.