Tractor sales to rise 15-16% in FY10, but input costs, end of stimulus could adversely impact sales.

Mahindra & Mahindra Ltd reported a near-tenfold rise in profit, but its shares fell after India's top utility vehicles maker said rising input costs and the possible end of stimulus spending could hurt its growth.

The company, which also makes tractors and light commercial vehicles, on Monday said raw material costs as a ratio to sales rose 250 basis points in the December quarter from the September quarter.

"Last quarter, the main factor for the company reporting below forecasts was the rise in raw material prices and a fall in other income," said Surjit Arora, auto analyst with Prabhudas Lilladher.

"With commodity prices still high, we expect the company's margins to be under pressure and its stock will continue correcting," he said.

The board also approved a 2-for-1 stock split.

Mahindra's shares fell as much as 6.6% to 1,057.05 rupees, their lowest since December 30, after the results. They eventually ended down 5.2%, their biggest daily fall in 5 months, at 1,072.35 rupees, their lowest close in 2010.

"We are not too much worried by any rise in interest rates... we can manage it to a certain extent. Commodity prices are on an upswing and it depends on how much we can absorb," M&M President Pawan Goenka told reporters.

"But if there is a major reversal in the government stimulus package, that will have an adverse impact in this quarter and next."

Mahindra's reported a net profit of 4.14 billion rupees in the December quarter, its fiscal third quarter, compared to 436 million rupees a year earlier.

Net sales rose to 44.8 billion rupees from 28.7 billion.

The government has said any withdrawal of fiscal stimulus steps, such as cuts in vehicle duties, which were introduced since late 2008 to shore up industry and the broader economy against the global downturn, would not start until 2010-11.

On Friday, the Reserve Bank of India is expected to tighten policy by raising banks' reserve requirements, and interest rates are expected to rise in coming months.

Shares in Mahindra, worth $6.86 billion, rose 22.7% in the December quarter outperforming the 2% rise in the main index. BSESN. (Reporting by Janaki Krishnan; Editing by John Mair)