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Mahindra quarterly profit falls 27% on weaker India automobile demand

Sales of SUVs and vans declined 21% in the second quarter

Mahindra and Mahindra’s second-quarter profit slumped about 27% as a slowdown gripping the Indian automobile industry hurt the sport-utility vehicle maker’s sales.

Demand for automobiles in Asia’s third-largest economy has been declining amid a credit squeeze that marred consumer sentiment. A growing preference in cities for ride-hailing services such as Ola and Uber also affected sales of cars and SUVs, prompting automakers to slash production and cut jobs. Prime Minister Narendra Modi’s government recently took several measures including lowering corporate taxes to help boost demand.

Mahindra posted a standalone net income of 12.13 billion rupees ($170 million) in the quarter ended in September. Total revenue for the maker of Scorpio and Bolero SUVs fell 15% to 110.76 billion rupees. Analysts were expecting the company to report a profit of 11.5 billion rupees, according to a Bloomberg poll.

The company sold 110,824 vehicles in the quarter, down 21% from a year earlier.

The measures announced by the government and the lagged effect of interest rate cuts by banks should help revive consumption demand and growth, Mahindra said in a statement. However, any sharp pruning of government expenditure to meet its fiscal deficit targets or a deterioration in the global environment remains a big risk factor, it warned.

Operating margins declined to 14.1% from 14.5% a year ago. The operating earnings at the automotive unit slumped 19%. Mahindra’s farm equipment business saw its operating earnings plunge 10% as tractor sales declined 6%.

The overall profit fell due to the decline in sales volumes, Pawan Goenka, managing director of M&M, told reporters at a press conference in Mumbai.

“For the first time since 2001, we have had all sub-segments of the auto industry declining,” Goenka said, adding that sales of passenger vehicles dropped 28% in the quarter.

Last month, Maruti Suzuki India, the nation’s largest carmaker, reported its second-quarter profit slumped 39%.

Mahindra entered into a joint venture with Ford Motor last month. Under the deal, Ford will get Mahindra on board as a partner for developing and selling its vehicles in India and emerging markets using the U.S. company’s production facilities.

Analysts hailed the move saying the deal will allow Mahindra to lower its costs and limit its investments. Still, they warned that the deal failed to ensure any major near-term benefit, with limited clarity on whether the Indian company will be able to leverage Ford’s expertise in petrol engines.

Shares of Mahindra closed 0.1% lower in Mumbai trading on Friday, while the benchmark S&P BSE Sensex closed 0.8% down.

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