The share price of Mahindra & Mahindra (M&M) rose 4 percent on Wednesday after the firm reported its revenue ahead of estimates, up 6 percent in the September quarter at Rs 11,590 crore as against Rs 10,935 crore a year ago.
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However, the auto major reported an 88 percent drop in its profit after tax (PAT) to Rs 162 crore for the second quarter ended September 30, mainly on account of an impairment provision of Rs 1,149.46 crore for certain long-term investments.
The auto major had reported a PAT of Rs 1,355 crore during the July-September period of the previous fiscal.
The stock rose as much as 4 percent to the day's high of Rs 644.45 per share on BSE. For the year as well, the stock is up 20 percent.
Brokerage house CLSA noted that Q2 FY21 operating results came in significantly ahead of its expectations, despite the decline.
"Q2 EBITDA margin improved 370 bps YoY to 17.8 percent (highest ever), driven by improvements in both Farm and Auto segment margins. Management believes that a large part of the cost savings is structural. M&M also announced the shutdown of its aircraft manufacturing business (Gipps Aero) and reiterated its decision of no further investments in Ssangyong," it said.
The brokerage also raised its FY21-23 core EPS estimates by 1-19 percent and target price to Rs 790 from Rs 730 earlier. It reiterated the 'buy' call on the stock.
The Mumbai-based firm sold 87,332 units in the second quarter, down 21 percent from 1,10,824 units in the year-ago period. Commercial vehicle (CV) sales stood at 47,309 units.
Tractor sales increased by 31 percent to 89,597 units in the July-September period as compared to 68,359 units a year ago.
The exceptional items on account of impairments have led to a drop in the profit after tax in the current quarter as compared to the corresponding quarter in the previous year, said the company.
"An exceptional item of Rs 1,149.46 crore during the September quarter represents impairment provision for certain long-term investments," it said.
On the anticipated impact of the second wave of COVID-19, M&M Executive Director (Auto and Farm Sector) Rajesh Jejurikar said, "Even if another wave of COVID-19 arrives, the impact on the supply chain may not be as intense as before since everyone is better equipped to deal with it than the first one."
On-demand prospects, M&M Managing Director and Chief Executive Officer Pawan Goenka said, "For Mahindra, there are 3-4 products in the passenger vehicle segment that has fairly good forward booking right now."
(With inputs from PTI)
