Mahindra & Mahindra (M&M) on Tuesday reported an 88 per cent drop in its profit after tax (PAT) to Rs 162 crore for the second quarter ended September 30, mainly on account of an impairment provision of Rs 1,149.46 crore for certain long-term investments.
The auto major along with one unit, Mahindra Vehicle Manufacturers Ltd (MVML), had reported a PAT of Rs 1,355 crore during the July-September period of the previous fiscal.
Its revenues, however, increased to Rs 11,590 crore in the second quarter as against Rs 10,935 crore a year ago, M&M said.
The company announced the closure of its aircraft manufacturing business in Australia and putting it up for sale.
"We have shut down our Gipps Aero business, which was into the manufacturing of 8- and 10-seater planes in Australia," Mahindra & Mahindra Deputy Managing Director and Group CFO Anish Shah told reporters in the post-earnings virtual media conference.
"It is up for sale for someone who wants to buy it. But, if there is no buyer, the business has been shut down already," he said adding that there is no further activity in terms of manufacturing or selling new planes.
He also said the international subsidiaries are getting all the attention right now and by the end of the fiscal, it would have a clear view of the three categories that have been spoken about in the past.
The Mumbai-based firm sold 87,332 units in the second quarter, down 21 per cent from 1,10,824 units in the year-ago period. Commercial vehicle (CV) sales stood at 47,309 units.
Tractor sales, however, increased by 31 per cent to 89,597 units in the July-September period as compared to 68,359 units a year ago.
The exceptional items on account of impairments have led to a drop in the profit after tax in the current quarter as compared to the corresponding quarter in the previous year, said the company.
An exceptional item of Rs 1,149.46 crore during the September quarter represents impairment provision for certain long-term investments, it said.
The company also said that on the automotive side, it had low pipeline inventory due to BS-VI transition in February and March but faced challenges in ramping up due to high dependence on Maharashtra, which had higher COVID-19 impact along with overall shortage of manpower.
The firm said it has a highly localised supply chain and its total import on the automotive side is less than 3 per cent, and that from China is only a small portion. "Supply-side issues are behind us." On the anticipated impact of the second wave of COVID-19, M&M Executive Director (Auto and Farm Sector) Rajesh Jejurikar said, "Even if another wave of COVID-19 arrives, the impact on the supply chain may not be as intense as before since everyone is better equipped to deal with it than the first one." He added that the company is learning to adjust to activities with adequate levels of shutdowns. "And, there will be no complication of moving to BS-VI norms and not much migration of workers is expected now." However, after the festive season, the company will do stock build-up and expect greater stability going forward, it said.
On demand prospects, M&M Managing Director and Chief Executive Officer Pawan Goenka said, "For Mahindra, there are 3-4 products in the passenger vehicle segment that has fairly good forward booking right now." The company is confident of demand beyond festive season also, he said.
Stating that this pent-up demand cannot last for six months, he said, "Nobody really knows whether demand is pent-up or structural... Till mid-November, Diwali demand will be very high." After that, for the rest of November and December, it will be used up for filling inventory, Goenka added. "The real test will be in January (when December sales numbers come out)." Jejurikar said the tractor exports that have been stopped due to the exceptional level of demand are expected to be resumed after the festive season.
On the tractor segment outlook, he said the segment is expected to grow in low double-digit this fiscal.
The company said that with the government spending and rural demand anchoring economic activity, manufacturing and some categories of services have gradually recovered in the second quarter.
Proactive steps from the RBI have kept domestic financial conditions easy and system liquidity in surplus, it said.
Besides, kharif sowing and the recent agricultural reforms portend well for the rural economy, it added.
"However, the turnaround in urban demand may continue to lag, especially the contact-intensive services sectors. Manufacturing capacity utilisation is expected to recover in the third quarter and activity to gain some traction from the fourth quarter onwards," M&M said.
Capital expenditure and exports are likely to remain subdued, it added.