Prices of non-steel raw materials have started creeping up, posing a challenge for the company.
08 Feb 2025 | 5390 Views | By Darshan Nakhwa
The cost of raw materials, which have largely remained benign in recent quarters, have started inching up, and could, along with a depreciating rupee, push up overall automobile manufacturing costs in coming months, said Mahindra & Mahindra's Chief Financial Officer Amarjyoti Barua.
The company, meanwhile, posted strong growth in ...
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The cost of raw materials, which have largely remained benign in recent quarters, have started inching up, and could, along with a depreciating rupee, push up overall automobile manufacturing costs in coming months, said Mahindra & Mahindra's Chief Financial Officer Amarjyoti Barua.
The company, meanwhile, posted strong growth in auto division margin in Oct-Dec on account of effort on cost out and optimising of the inputs that go into vehicles. However, now two new trends have emerged that are likely to complicate the cost picture, Barua said.
M&M’s automotive business’ standalone profit before interest tax margin expanded to 9.7% from 8.5% in the year-ago period. Factors such as price hikes, low discounts, rich product mix, volume growth, and operating leverage benefit aided the metric during the quarter. M&M’s farm equipment business’ standalone PBIT margin came in at 18.1% in Oct-Dec, compared to 15.5% in the year-ago quarter.
“One, the overall commodity market was very benign for the longest time. While it appears benign on the surface, when you start going deeper, you see that steel is the only reason it's overall benign. Others (raw material prices) have started creeping up. So there is a raw material inflation. So far, it has remained benign for us, but that is a challenge. On the farm side as well, we are seeing some of the pressure of rubber costs,” he said.
According to Barua, another trend that has become quite pronounced now is the foreign exchange rate, which may push up electric vehicle manufacturing costs. “In our electric vehicles in particular, there is an import content that you are well familiar with, that will become dearer as the exchange rates go against the Indian rupee. So that is something that we have to work through.”
Currently, most electric vehicle manufacturers in India import cells and batteries from other countries, for which they have to pay in US dollars. However, the rupee has been on a downward slide against the dollar over the last few months due to paucity of portfolio inflows, and uncertainty of US President Donald Trump’s tariff policies. The Indian currency fell about 3% in 2024 and has fallen another 2% so far this year. It has been the worst performer among Asian currencies.
“We will have to work harder to do some of the magic that the team delivers on a consistent basis, which is the product cost out that they have been driving, especially we have a strategic sourcing unit which focuses on this all the time,” Barua said.
In Oct-Dec, M&M clocked a topline of Rs 30,964 crore, registering a growth of 20% on year, and its net profit came in at Rs 2,964 crore, up 19% on year. However, the company also recorded a nearly 19% increase in total expenses to Rs 27,260 crore, driven by cost of materials consumed which rose 14% on year to Rs 20,279 crore.
The farm segment of the company achieved its highest domestic volume at 1.2 lakh units, a 20% year-on-year growth. It also recorded the largest market share of 44.2%. Further, despite challenges in the international business, it recorded a 14% YoY increase in its exports at 37,000 units this quarter.