Mahindra drops 5.9% after missing forecasts

Mahindra and Mahindra, India's largest utility vehicles maker, declines after a company official warns higher prices of raw material will hurt profits.

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Mahindra & Mahindra, India's largest sports utility vehicle maker, fell by its biggest amount since February 8 after first-quarter profit missed analyst estimates.

Shares dropped 5.9 per cent to 663.05 rupees at the close of trading, and the company was the worst performer on the Bombay Stock Exchange's benchmark Sensitive Index. The stock has declined 15 per cent this year. Net income for the quarter was at 7.07 billion rupees, up 6.5 per cent from last year. Analysts' averaged expectations had put the company reporting profits of 6.74bn rupees. Car sales in India grew a record 30 per cent last year, driven by a growing middle class in Asia's third-largest economy after China and Japan, but higher fuel prices, rising interest rates and intensifying competition are expected to dampen demand this year.

Indian car sales are expected to halve this year with growth pegged at 12 to 15 per cent, said Pawan Goenka, the chief of Mahindra's automotive division.

Mahindra's operating profit margin in the year that ended in March narrowed to 14.7 per cent from 15.9 per cent. The company spent 33 per cent more on materials during the fourth quarter as it increased output amid rising commodity demand in China and India.

"There may be a small dip in margin on a year-on-year basis largely because of the commodity prices," said Mahantesh Sabarad, an analyst at Fortune Equity Brokers India. The analyst has a "hold" rating on Mahindra. "Commodity prices are a big challenge," he added.

Prices of steel, rubber and other materials may gain 2 per cent more this fiscal year after gaining as much as 7 per cent in the previous 12 months, Mr Goenka said.

Mahindra said earlier this year it had completed all formalities related to the acquisition of a majority stake in Ssangyong Motor and would boost product development and brand spends at the South Korean sport utility vehicle maker.

The Sensitive Index fell 0.1 per cent to 18,232.06 points.