Speaking to ET Now, Patil said investors are accustomed to M&M delivering results that beat expectations. This time, however, the performance was more muted. He pointed out that average selling prices (ASPs) declined slightly, largely due to the company’s recent product launches, including the 3XO, which is positioned in a lower price bracket.
“Typically, M&M reports numbers that are ahead of expectations, but this time they have come up quite in line. I would not be very happy with the numbers because there is a slight reduction in ASPs. The launches that the company has done, especially the 3XO, are in the lower range, and that is why ASPs have fallen a bit. At the top line, the numbers are slightly below our expectations,” Patil said.
He also flagged some pressure on market share, particularly in the tractor segment. According to Patil, M&M appears to have ceded a bit of ground in farm equipment, even as margins in that segment showed some improvement.
On profitability, Patil noted that operating margins could have been better. Rising raw material costs have weighed on margins, resulting in weaker-than-expected operating leverage.
“If you see the margins as well, we could have seen slightly better margins, but because of the raw material cost market, which has slightly firmed up, that has resulted in slightly lower kind of margins. The growth in margins is not that strong,” he said.At the bottom line, Patil highlighted that one-off expenses related to labour code implementation impacted reported profit. Excluding this exceptional item, profit after tax showed healthier growth. Still, he said overall operating performance did not fully meet expectations.“On the bottom line, definitely the one-off expense of the labour code — if we remove that, then the PAT has grown much better. But overall, at the operating level, I had better expectations from the company. Nevertheless, the stock remains a buy for us, so we need to revisit our numbers and look at how much upside we get from these,” Patil added.
Breaking down segment-wise performance, ET Now highlighted that auto EBIT margins stood at 9.5%, while farm equipment margins came in at 20.3%. Patil said autos were a mild disappointment, while tractors offered some positive offset.
“On the auto numbers, we were expecting slightly better margins; however, on the tractor side, the margins have come slightly better. So, it is like offsetting each other. But autos definitely — as I said — the launches which the company had done this quarter with the low-ticket 3XO are the reason why we have seen sub-10% kind of margins on the auto side. We were expecting maybe close to 10%, maybe around 10.1% kind of margins, so it is slightly disappointing on auto margins, but on the tractor side, the company has surpassed our expectations,” he said.
Overall, while M&M’s numbers did not throw up major negative surprises, the results lacked the usual outperformance investors have come to expect. With pressures on ASPs, autos margins, and some market share loss in tractors, analysts are likely to reassess earnings assumptions even as long-term investment calls remain intact.
