UPDATE 1-Tractors drive Mahindra Q2 profit up 10 pct

Wed Nov 13, 2013 4:46am EST

* Q2 net profit 9.9 bln rupees vs 8.8 bln rupee est

* Net sales down 9 percent

* Strong monsoon rains to boost rural demand

* Shares gain to 2.1 percent (Adds details on SUVs, sales, analyst comment, shares)

Nov 13 (Reuters) - Mahindra and Mahindra Ltd, India's largest utility vehicle maker, posted a better-than-expected 10 percent rise in second-quarter profit as strong demand for its tractors made up for slowing SUV sales.

India still relies on monsoon rains to irrigate more than half its farmland and Mahindra, the world's largest tractor maker by volume, has been reaping the benefits of strong rains this year that have put more money in the hands of farmers.

Domestic sales at the company's higher-margin tractor business, which is estimated to account for little more than a third of revenues, rose 21 percent in volume terms in the quarter.

However, Mahindra's automotive division, which includes SUVs, trucks and buses, has been hit by high interest rates and fuel costs in a slowing economy. A rise in excise duty on SUVs and increased competition have hurt the company, which saw its market share in the utility vehicle segment fall to 42 percent at end-October from nearly 48 percent a year ago.

Mahindra said net profit for the quarter ended Sept. 30 was 9.9 billion rupees ($156 million) compared to 9.02 billion rupees a year earlier. Net sales fell about 9 percent to 88.14 billion rupees compared with 96.59 billion rupees a year ago.

Analysts on average were expecting a net profit of 8.8 billion rupees on revenue of 89.3 billion rupees, according to Thomson Reuters I/B/E/S.

Tax expenses fell about 18 percent and other income rose 12 percent, boosted by dividend received from subsidiaries.

Mahindra's stock has received nine brokerage recommendation upgrades in the last 90 days, the highest number of recent upgrades among 95 global automobile companies, according the Starmine data.

Analysts forecast tractor sales to stay strong for the rest of the year and there are some expectations that the company's rugged Bolero SUV, popular in rural areas, may see a pick up in demand during the second half.

"If they are able to maintain strong performance in tractors, it will drive their performance in subsequent quarters as well," said Rohan Korde, an analyst with Mumbai-base brokerage Anand Rathi.

Mahindra's shares, valued at $8.6 billion, have fallen 4.9 percent so far this year, underperforming a 4.5 percent rise in the main index. The shares gained 2.1 percent after the results.

Mahindra is the last major Indian automaker to report second-quarter results. Tata Motors, the country's largest automaker by revenue, said net profit surged 71 percent thanks to strong sales at its luxury Jaguar Land Rover unit, although its domestic business suffered a loss.

Maruti Suzuki, the country's biggest carmaker, reported a jump in profit from a low base last year and also benefited from positive currency movement.

($1 = 63.6375 Indian rupees) (Reporting by Aradhana Aravindan in MUMBAI; Additional reporting by Abhishek Vishnoi)