* Profit falls 9.9 pct, more than expected
* Tractor sales sluggish, input costs up 46 pct
* Auto sector strong, XUV500 sales soar (recasts, adds quotes, details, analyst)
By Henry Foy
Feb 7 Mahindra & Mahindra Ltd, India's biggest utility vehicle maker, reported a bigger-than-expected 9.9 percent fall in quarterly profit as rising commodity costs squeezed margins, and cautioned on a continued slowdown in tractor sales.
Indian automakers have struggled over the past six months as rising input costs dent margins and high interest rates curb once-soaring sales growth in Asia's third-largest economy.
"Given how material costs have moved during the quarter, and we are not able to pass these on 100 percent... our profitability will come down," Pawan Goenka, president of Mahindra's automotive and farm equipment sectors told reporters, in reference to the December quarter.
Material costs rose an annual 45.9 percent during the quarter, to account for 73.7 percent of net sales against 69.2 percent a year previously.
Mahindra, one of the world's top three tractor manufacturers, said on Tuesday net profit fell to 6.62 billion rupees ($135 million) for the quarter from 7.35 billion rupees a year earlier. Revenue rose 37 percent to 83.27 billion rupees.
Analysts on average had expected a profit of 6.96 billion rupees on revenue of 79.73 billion rupees, according to Thomson Reuters I/B/E/S.
Shares in Mahindra, valued at about $8.6 billion, closed down 2.9 percent at 689.65 rupees in a Mumbai market that closed down 0.48 percent.
The flagship company of the $14.4 billion Mahindra Group saw sales of its tractor brands rise 12 percent during the quarter, slightly below the industry average of 12.7 percent, its third straight quarter fall in growth.
"That is a surprise for us," Goenka said in response to the sales slump. "It's a concern that the industry is slowing down to almost becoming flat growth."
Goenka said industry sales Growth would continue to remain sluggish, between 0-5 percent in February and March, after a lacklustre January, but would rebound to 8-10 percent growth during the fiscal year that begins in April.
AUTO SALES POSITIVE
Mahindra's on-road vehicle range includes the recently launched XUV500 high-end off-road sports utility vehicle (SUV) and lightweight three-wheeled commercial trucks.
Passenger utility vehicle sales rose an annual 23 percent during the quarter, the company said on Tuesday.
Car sales in India have slumped in the past six months, as high interest rates deter customers typically dependent on loans. Sales growth will likely be flat in the fiscal year that ends in March, an industry body said last month.
Mahindra is the dominant player in India's SUV market and only produces diesel cars, a key factor that helped it outperform rivals during the sales slowdown on a surge in popularity for cars using the fuel.
Government subsidies make petrol around 60 percent more expensive per litre than diesel, leaving some petrol-focused manufacturers in a bind amid reports that the federal budget next month will impose a tax on diesel vehicles.
"Mahindra's auto division is very healthy for the company at the moment and it has certainly had a positive impact on the numbers for the past quarter," said Yaresh Kothari, auto analyst at Angel Broking in Mumbai.
"Looking forward, much will depend on the budget and whether there is a cost increase for diesel cars and the form it takes."
The XUV500, which reopened sales bookings last month, has had over 25,000 applications from buyers for just 7,200 vehicles, the company said on Tuesday.
Mahindra, which exports the vehicle to South Africa, is keen to begin sales of the XUV500 in Chile, Australia and some European countries when domestic demand moderates, Goenka added, without providing a timeframe. ($1 = 49.0600 Indian rupees) (Editing by Rajesh Pandathil & Subhadip Sircar)