Mahindra Reports First Quarterly Loss In 19 Years Amid Covid-19 Crisis

Hit by impairment losses mainly in its South Korean subsidiary SsangYong and other international subsidiaries, and a sharp fall in demand for its tractors and utility vehicles because of the Covid-19 pandemic, Mahindra & Mahindra on Friday reported its first quarterly loss in nearly two-decades during the quarter ended March 31, 2020 (Q4FY20).

The company reported a net loss of Rs 1,761 crore on consolidated basis in Q4FY20, the first such instance since the July-September quarter in 2001 (Q2FY02).

In comparison, the Mumbai-based company had reported profit before tax (PBT) of Rs 1,705 crore on a consolidated basis in Q4FY19 and Rs 868 crore in Q3FY20. The firm began reporting consolidated quarterly result only from the June 2018 quarter.

M&M also reported a sharp decline in net sales during the quarter as volume declined across segment because of the lockdown. On a consolidated basis, net sales were down 26 per cent year-on-year (YoY) to Rs 20,182 crore during the quarter. Standalone net sales were fell 35 per cent YoY in the quarter — its worst showing since it first reported quarterly results in June 1997.

At Rs 9,144 crore, M&M’s net sales in the quarter on standalone basis was the lowest since the December quarter in 2013. In comparison, it reported net sales of Rs 14,035 crore during Q4FY19 and Rs 12,345 crore in Q3FY20. Losses were largely attributed to asset impairment charges as M&M marked down the fair value of its long-term equity investment in its subsidiaries and joint ventures because of Covid-19. This led to an exceptional loss of Rs 2,780.5 crore on standalone basis and Rs 1,782.6 crore on consolidated basis during the quarter. Adjusted for exceptional gains and losses, it reported net loss of Rs 530 crore on consolidated basis and a net loss of Rs 276 crore on standalone basis.

Nearly 80 per cent of the impairment was on account of M&M’s investment in South Korean firm SsangYong Motors and its North American electric scooter business, which it plans to shut.

The company’s standalone business includes the farm equipment, or tractor, and automotive segments. On a consolidated basis, M&M is amongst the country’s biggest conglomerates with a presence in the IT services, retail lending, insurance brokering, hospitality, defence equipment, real estate, logistics, and auto components sectors, among others.

On a consolidated basis, M&M reported losses in three of its six-business segments — automotive, real estate, and others, before exceptional items. In comparison, farm equipment, financial services and hospitality divisions reported profits before interest and taxes (PBIT), excluding exceptional items.

The Street, however, expected worse and equity investors and traders were delighted at the lower losses in the company’s core businesses of tractors and domestic automobiles. As a result, the stock rallied after the results and M&M was the top gainer among index stocks, ending the day with gains of 7.2 per cent, against 0.7 per cent rise in the benchmark BSE Sensex.

The company reported a 100 basis points increase in its share of the domestic tractor market to 41.2 per cent during FY20, against 40.2 per cent the previous year. The firm also reported better-than-expected operating margins in its automotive and tractor businesses aided by lower raw material prices.

“M&M delivered strong performance in Q4FY20 on the back of better traction from its farm equipment segment despite subdued performance of auto business. We expect the company to benefit from the tractor business going forward given a healthy rabi crop and higher MSP (minimum support price) for food grains. Therefore, we remain positive on M&M,” said Mitul Shah, vice-president (Research), Reliance Securities.