rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » It's a cloudy outlook for Mahindra & Mahindra

It's a cloudy outlook for Mahindra & Mahindra

Last updated on: June 29, 2012 10:55 IST

It's a cloudy outlook for Mahindra & Mahindra

     Next

Next
Malini Bhupta in Mumbai

The outlook on Mahindra and Mahindra (M&M) has been changing since its tractor business hit a speed-breaker. Analysts say there are no real triggers for its shares to move up in the near term.

M&M, which derives 60 per cent of its revenues from rural India, had guided tractor volumes to grow five per cent in FY13, after volumes dipped sharply towards the end of 2011.

The Street, therefore, does not expect the company to meet its tractor volume guidance, going by the 4.5 per cent year-on-year decline in sales volume over April and May.

Click NEXT to read more...


Photographs: Babu/Reuters

     Next

It's a cloudy outlook for Mahindra & Mahindra

Prev     Next
Prev

Next

Emkay Global expects tractor volumes to dip five per cent this year. Ten states (Uttar Pradesh, Andhra Pradesh, Bihar, Gujarat, Maharashtra, Madhya Pradesh, Punjab, Rajasthan, Karnataka and Tamil Nadu) accounted for 85 per cent of M&M's tractor sales in FY12.

If these states get deficient rainfall then the demand for tractors will be further affected. Sharekhan's Deepak Jain, too, had earlier built in a five per cent growth in tractor volumes in FY13, but has scaled it back and now expects volumes to remain flat.

As a result, the standalone earnings per share (EPS) estimate would be impacted by 4.2 per cent.

Click NEXT to read more...


Photographs: Adeel Halim/Reuters

Prev     Next

It's a cloudy outlook for Mahindra & Mahindra

Prev     Next
Prev

Next

The change in estimates also has to do with the monthly sales trajectory over April and May.

The company's tractor sales in this period were down 4.5 per cent year-on-year. Going by the trend, analysts expect June to be weak, too, as the company sold 22,730 units in June 2011.

Given the high base, the company would find it difficult to even match these volumes. In order to grow volumes by five per cent in FY13, it would have to grow tractor volumes by 10 per cent, which looks rather tough at this point.

Click NEXT to read more...


Photographs: Babu/Reuters

Prev     Next

It's a cloudy outlook for Mahindra & Mahindra

Prev     More
Prev

More

However, analysts are not downgrading the stock just yet. While the market does not expect any negative surprise from the automotive segment, which is estimated to grow at 13.5 per cent, being a high-margin business, the farm equipment segment's contribution to profitability is higher.

While tractors contribute 37 per cent to revenues, these contribute nearly 50 per cent of the company's earnings before interest and taxes (Ebit).

The farm equipment business has a superior margin profile (between 15-17 per cent), while the auto segment enjoys margins of 8-10 per cent.


Photographs: Arko Datta/Reuters

Prev     More
Source: