M&M lags estimates; warns of declining margins

Mumbai: Mahindra & Mahindra, India's largest utility vehicles maker, lagged estimates with a 6.3 percent rise in its quarterly net profit and warned higher raw material costs could hurt margins, sending its shares down more than 4 percent.

Auto sales in India grew a record 30 percent in 2010, driven by a burgeoning middle class in Asia's third largest economy, but higher fuel prices, rising interest rates and intensifying competition are expected to impact demand this year.

Mahindra and Mahindra shares were down by 4 percent as its results lagged estimates. Ruth Leem/Reuters

Indian auto sales are expected to halve this year with growth pegged at 12 to 15 percent.

Mahindra & Mahindra sees pressure on operating margins as the company is not able to pass on higher raw material costs to its customers, the group Chief Financial Officer Bharat Doshi told reporters.

Shares in Mahindra, which the market values at more than $9 billion, fell as much as 4.6 percent to 672.65 rupees after the results in a Mumbai market that was trading 0.1 percent lower.

Sharply higher borrowing costs, capacity constraints of autoparts makers and rising raw material prices are putting pressure on the margins of automobile companies.

Leading carmaker Maruti Suzuki and truck and bus maker Tata Motors have both warned that higher commodity prices continued to be a challenge and have raised prices in recent months.

Mahindra reported net profit of Rs6.1 billion for its fiscal fourth quarter ended March, compared with Rs5.7 billion a year ago.

Analysts, on average, expected net profit of 6.8 billion rupees, according to Thomson Reuters StarMine.

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