Mahindra Profit Unexpectedly Tumbles 99% on Currency

Jan. 31 (Bloomberg) -- Mahindra & Mahindra Ltd., India’s largest maker of sport-utility vehicles and tractors, said third- quarter profit tumbled a more-than-expected 99 percent as currency losses mounted and sales fell.

Net income in the three months ended Dec. 31 dropped to 12 million rupees ($245,000) from 4.05 billion rupees a year earlier, the Mumbai-based company said in a statement. That is Mahindra’s smallest quarterly profit since at least since 2003 and the fourth straight decline, according to Bloomberg data. The median estimate in a Bloomberg News survey of nine analysts was for a profit of 1.09 billion rupees.

Mahindra incurred a currency loss of 1.2 billion rupees as the rupee dropped for a fourth straight quarter, completing the steepest slide in 17 years. Its utility-vehicle sales fell 26 percent in the quarter as banks tightened credit and rising job insecurity hurt sales in Asia’s fourth-largest automotive market. The Indian partner of Renault SA shut most of its plants for three to six days in December due to weaker demand.

“People are either postponing or canceling vehicle purchases as the slowdown has affected sentiment,” said Anup Maheshwari, an analyst at Mumbai-based K.R. Choksey Shares & Securities Pvt., who recommends investors “sell” Mahindra. “If you are unsure about future earnings, you are in a saving mode.”

India’s rupee fell 3.5 percent in the three months through December, taking its decline in 2008 to 19 percent. That was the currency’s worst performance since a balance of payments crisis in 1991 forced the South Asian nation to pawn its gold to pay for imports. The rupee was the second-worst performer last year among the 10 most-active Asian currencies outside Japan.

‘Recessionary Conditions’

The foreign-exchange loss was due to “cancellation of forward covers entered into by the company to hedge certain anticipated exports,” Mahindra said. Exports slumped 54 percent last quarter due to “recessionary conditions globally,” it said.

The last quarter was extremely challenging for both automobile and tractor industries, the company said in the statement. The “paucity of retail finance, its high cost and lukewarm consumer sentiment in the wake of the global financial turbulence saw volumes decline.”

Tata Motors Ltd., the Indian truck maker that owns Jaguar and Land Rover, yesterday reported its first quarterly loss in seven years as currency fluctuations aggravated the impact of falling sales in the last quarter.

Inflation, Rates

India’s central bank said Jan. 27 the nation’s economy may grow 7 percent in the year to March 31, lowering its earlier forecast of between 7.5 percent and 8 percent.

To revive growth, the Reserve Bank of India has reversed four years of monetary tightening and the government announced economic stimulus plans. On Jan. 28, India cut retail fuel prices for the second time in less than two months. The central bank cut its policy rates this month for a fourth time since October to record lows.

Mahindra rose 2.7 percent to 302.25 rupees in Mumbai trading yesterday. The stock has gained 10.1 percent this year.

Cheaper crude oil, slower inflation and the Indian central bank’s measures to make money cheaper and more easily available in the financial system may reduce Mahindra’s costs in the coming months, the company said.

India’s inflation rate halved from a 16-year high touched in August. It was at 5.64 percent in the week ended Jan. 17, near an 11-month low. Crude oil has declined more than 70 percent from a record high of $147.27 per barrel reached in July.