Mahindra Shines Brighter Than Rest of Indian Automotive Sector

The combined quarterly results announced recently by one of India’s leading auto manufacturers, Mahindra Vehicles Manufacturers Limited/Mahindra & Mahindra, may be an exception to India’s overall automobile story – one of declining sales – but in some ways it does mirror the performance of India’s steel and aluminum sectors, both producing key ingredients for automobiles.

The company’s stand-alone net profit for the third quarter rose 26 percent from a year ago, while net sales for the three-month period rose 29 percent on a year-on-year basis.

Of course, the Q3 results did beat the street’s expectations, but India’s utility vehicles manufacturer would have expected sales to be slightly better. So how much of a role did rising steel prices and the slowdown in India’s aluminum growth impact M & M’s performance?

A Mahindra official, who himself seemed rather pleased with his company’s overall Q3 results, was quick to point out on the day of the results that they would have loved passenger car sales to have been much higher. But he would not squarely blame steel or the hike in aluminum prices for it.

Analysts were also of the opinion that in that quarter, while aluminum prices had gone up by around 4 percent sequentially, steel prices had remained stable and so input-cost impact for auto companies was marginally lower to stable.

At least in Mahindra’s case, more than steel and aluminum prices, a slowdown in some of its key markets such as Sri Lanka, Bangladesh and Bhutan was responsible for volume deceleration in exports, said Pawan Goenka, president of the automotive and farm equipment sector.

Mahindra is a leader in the utility vehicle space, having almost 50 percent of that market, and in the last two years, it has launched several diesel SUVs, which has helped the company’s revenues rise. Over the next four years, it will jointly invest US $900 million with its Korean subsidiary Ssangyong Motor Company to develop more products.

Mahindra’s performance has mirrored India’s overall auto sector performance of the last three years. The auto sector had reported a robust growth rate of 26 percent between 2010 and 2012. Auto shares on the Bombay Stock Exchange and National Stock Exchange, compared to other counters, had reflected investor confidence.

But there was a slight hiccup in 2012 with the auto sector showing a slower growth of 12 percent. Now, sector analysts predict a further dip in this sector’s growth in 2013, pegging it to 10 percent.

There’s no doubt anymore about last year’s slowdown.

Why? Check back in for Part Two.

Sohrab Darabshaw contributes an Indian perspective to MetalMiner.

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