What to expect from M&M's Q4 earnings

Moneycontrol Bureau

Last year was rather forgetable for automakers in India, especially the passenger car makers, as demand slumped amid expensive loans and a sharp rise in petrol prices. Mahindra & Mahindra's auto division, however, bucked the trend. With most of its portfolio comprising of diesel vehicles and successful launch of the new XUV 500 global SUV, sales growth remained strong.  But at its tractor division it was a different picture, with sales hitting speed bumps in the last few months of 2011-12.  The Mahindra-group company will report its fourth quarter and full year earnings on Wednesday. M&M's total vehicle sales rose 28% year-on-year to 4.83 lakh units last year. Sales of passenger vehicles, including the Verito sedan and utility vehicles rose 23% to 2.20 lakh units. Its four-wheeler commercial vehicle sales rose 45% and three-wheeler CV sales were up 9%. It also sold 13,823 medium & heavy trucks at Mahindra Navistar, compared with 11,077 units sold a year ago.  Over at its farm equipment division, tractor sales last year grew 10% to 2.35 lakh units. In the fourth quarter, M&M's automotive division grew 20% domestically, while its tractor sales in India are down 17%, points out Yaresh Kothari, analyst at Angel Broking. "We expect (automotive) volumes to be supported by 8 new launches in FY12, ramp-up in XUV 500 production, further launches in FY13 with mini-Xylo, two new versions of Veritoa and one vehicle from Ssangyong's portfolio," say Jinesh Gandhi and Mansi Varma of Motilal Oswal. Overall analysts expect M&M's fourth quarter net profit in the range of 5% to -5% year-on-year, while net sales are expected to rise 20-25%. On a sequential basis, net profit is seen down 2-5%, on sales growth of around 1%. "For M&M, we expect sustained margin pressure on account of an adverse mix (lower tractor sales)," said Amit Kasat and Aniket Mhatre of Standard Chartered. Overall the two analysts expect the company's EBITDA margin to decline 50 bps quarter-on-quarter to 11.2%. Emkay Global's Chirag Shah sees M&M's EBITDA margin down 70 bps sequentially and 170 bps year-on-year due to lower share of tractors at 27% in fourth quarter, compared with 34% in the third quarter. Key things to watch out for: -- Outlook for tractor demand and utility vehicles -- Capex plans for the next couple of years -- Commentary on input costs and foreign exchange hedges -- Price hikes going ahead -- Diesel capacity ramp up -- Growth and outlook at Ssangyong M&M shares were trading up 0.7% at Rs 658.65 on NSE in afternoon trade on Tuesday. The stock is down 4% since December-end, underperforming the wider auto index, which has gained 16% and the CNX Nifty, which has gained 8% during the same period.