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Thursday, February 09, 2012

By Shilpa Chopra

Mahindra cars profit margin smashing by the high input cost

Mahindra & Mahindra has going through the challenging market situation where, the higher raw material cost disturbing its profit margins. The company has reported the revenue growth of 34.3 percent annually to Rs.8,978.7 crore in the last quarter of the previous year but, the profit grew upto 7.3 percent only (after the tax increment).

As compare to the third quarter of the previous year the company’s net profit (excluding subsidiaries) has declined to Rs.662.15 crore, said company sources. According to the analysts, the high cost of raw material (like rubber & steel) has smashing the profit margins of the company.

Annually, the sales of raw materials have been increased by 74.3 percent from 69 percent and the constantly fuel price and Indian currency value inflammation working as the fuel in fire. With an intention to expand the profit margins, company is keeping a close check over the sales percentage of the employee cost and other expenses.

Mahindra Xylo Pictures

See More Mahindra XUV 500 Photos Get Mahindra XUV 500 Price

However, the company is trying hard to improve the profit margins but, the Utility Vehicle (UV) segment still hanged at low margins, consequently there has been a decent price hike in Mahindra XUV 500 and Mahindra Xylo including the other Mahindra’s UVs. The margins are expected to get improve in the next three months, say experts.

The company’s stock’s performance is expected to get affected, if the Indian government impose the high tax on diesel vehicles or the demand of farm equipments get decreased. In Indian automotive market, the Mahindra tractors have reported a moderate sales growth of 12.7 percent annually, according to the company’s officials.

The Equity strategist of Emkay Global, Dhananjay Sinha has said that the constant upheavals of the profit margin and revenue may not go so long. The slow credit growth in the rural India and tractor’s price are the two main reasons behind the slow growth of the tractors.

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