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Mahindra Q4 net below forecast

The Mumbai-based company said it was optimistic about the current year, but remained wary of volatile input costs.

india Updated: May 31, 2006 12:03 IST

India's top tractor and utility vehicle maker, Mahindra & Mahindra Ltd, on Monday posted lower-than-expected quarterly earnings adjusted for one-time gains, as raw materials costs climbed.

The Mumbai-based company said it was optimistic about the current year, but remained wary of volatile input costs.

Indian auto firms have enjoyed robust sales on rising incomes and cheap loans in Asia's third-largest economy, but sales growth eased in the year to March 2006 on a cyclical slowdown, higher fuel prices and firmer interest rates.

Mahindra said net profit more than doubled to Rs 3.21 billion ($70 million) for the fiscal fourth-quarter to end-March, helped by a one-time gain of Rs 1.68 billion from sale of shares in Mahindra & Mahindra Financial Services Ltd.

Excluding the gain, earnings were flat at Rs 1.53 billion versus a year-earlier period, and lagged a median forecast of Rs 1.87 billion in a Reuters poll of 12 brokerages.

Net sales rose 20 per cent on the year to 22.88 billion.

"Considering the volatility of raw material prices during the quarter, we were able to contain them to some extent," said Executive Director Bharat Doshi.

"But we are living in volatile times, and we have to learn how to live with it," he said, adding that rising interest costs, exchange rate volatility and crude oil prices needed monitoring.

Mahindra, which has about 30 percent of India's tractor market, the world's biggest by volume, said raw material expenses rose 14 percent on the year to Rs 14.67 billion.

Shares in Mahindra ended marginally lower at RS 591.50 in a firmer market.

Shares in Mahindra, valued at $3 billion, rose 26 per cent in Jan-March, beating a 25 per cent gain for the sector index and a 20 per cent rise on the main index.

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Formed in 1945 to make Chrysler Jeeps in India, Mahindra has nearly half of India's utility vehicle market and 30 percent of its tractor market. The world's number-four tractor maker, Mahindra aims to be at the top in five years.

Mahindra has a joint venture with China's Jiangling Motors Co with an annual capacity of 12,000 tractors, but its bid for Romania's Tractorul Brasov has been suspended on negotiations on Tractorul's accumulated debt of more than 180 million euros ($230 million).

Mahindra has an $80-million joint venture with Navistar Inc's International Truck and Engine Corp to make 50,000 medium and heavy trucks a year from 2007. It will also make Logan sedans with France's Renault from 2007.

It said on Monday it is developing a new platform for a utility vehicle named "Ingenio", touted as a replacement for Mahindra's dated Bolero model and slated for launch in 2008.

Mahindra's planned capital expenditure for the year to March 2007 is 6.5 billion to Rs 7.0 billion.

It sold 65,393 vehicles and tractors in Jan-March, up 9 per cent from a year ago but lagging market growth of 11 per cent.

"Input price pressure and competitive pressure will continue, and the company will have to make an extra effort to maintain margins," said Kalpesh Parekh at ASK-RJ Securities.

Leader Tata Motors Ltd. earlier in May reported a lower-than-expected 17 per cent rise in quarterly profit to Rs 4.58 billion.

Demand for heavy trucks in India's $5-billion bus and truck industry is rising, but Tata Motors is launching new products from the Daewoo stable, while Force Motors has teamed up with Germany's MAN AG to make trucks.

Mahindra is investing 1 billion rupees to expand capacity at its plant in the western city of Nashik to 570 vehicles a day from 330, and stepping up production of its popular Scorpio utility vehicle to 180 units per day from 132.