M&M: Scorpio still stings - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

M&M: Scorpio still stings

Apr 19, 2004

Buoyed by the success of Scorpio, its offering in the SUV (Sports Utility Vehicle) segment, auto major M&M is planning a new product development programme and has already announced plans to raise US$ 100 m (approx Rs 4.4 bn) for the same. Besides, the company is also planning some acquisitions in the foreign markets. For a company, which only a few years back steadily losing market share to rivals like Tata Motors (with Sumo and Safari) and Toyota (Qualis), the turnaround couldn’t have come at a more opportune time. Now that Scorpio has become a success, the company hopes to do a repeat act with a new product platform. In this article, let us review the recent performance of the company and outlook.

Spurred by the success of Scorpio, which the company launched in 2QFY03, M&M, posted a 14% increase in revenues and a healthy 42% jump in bottomline during FY03. Had it not been for the pricing pressure for tractors as well as a low capacity utilisation, the company’s performance would have looked even better. Scorpio continued to power M&M’s performance in FY04 as well and thanks to a 37% rise in volumes in its UV division, the topline of the company grew by a strong 32%, whereas its bottomline surged by 109% on a YoY basis during 9mFY04. Thanks to bottoming out of the tractor division and better sales mix, the operating margins also improved by a significant 210 basis points during the same period.

Going forward, on account of continued demand for SUVs and extremely competitive pricing policy adopted by the company, Scorpio is likely to witness robust sales. However similar launches by rivals such as Tata Motors and Toyota might prove to be a dampener. Tractor division on the other hand, is showing signs of revival. This can be further proven by the fact that the inventory with the dealers as of 31st Jan 2004 stood at 1,852 tractors, lower by around 74% from the FY02 levels and 55% from the FY03 levels. Besides, the company, which is the largest exporter of tractors in the country, is hoping to increase the contribution.

On the financials front, on account of restructuring, whereby the company retired debt to the tune of Rs 1.3 bn, the interest cost of the company has come down and stood at 7% in 9mFY04 as compared to 10% in FY03. It might further come down, following the company’s announcement to raise US$ 100 m (approx 4.4 bn) from the foreign markets.

The stock is currently trading at Rs 480, implying a P/E of 20x its annualised 9mFY04 earnings. While the valuations appear stretched from a short-term perspective, we remain positive on the future prospects of the company on account of revival in tractor division. On the flip side, as always, when the industry turns around, the company initiates big-ticket investment plans that have often led to unrelated diversifications. Investors have to exercise caution as far as the cash utilisation is concerned.

Equitymaster requests your view! Post a comment on "M&M: Scorpio still stings". Click here!

  

More Views on News

M&M Announces Quarterly Results (1QFY22); Net Profit Down 482.2% (Quarterly Result Update)

Aug 9, 2021 | Updated on Aug 9, 2021

For the quarter ended June 2021, M&M has posted a net profit of Rs 7 bn (down 482.2% YoY). Sales on the other hand came in at Rs 192 bn (up 60.2% YoY). Read on for a complete analysis of M&M's quarterly results.

M&M Announces Quarterly Results (4QFY21); Net Profit Up 295.7% (Quarterly Result Update)

Jul 8, 2021 | Updated on Jul 8, 2021

For the quarter ended March 2021, M&M has posted a net profit of Rs 13 bn (up 295.7% YoY). Sales on the other hand came in at Rs 215 bn (up 31.5% YoY). Read on for a complete analysis of M&M's quarterly results.

Mahindra & Mahindra Shares Surge on Bagging Contract for Defense Equipment (Views On News)

Jun 4, 2021

Mahindra & Mahindra has signed a contract with the Ministry of Defence.

Forget Tesla. Here Are 3 Indian Companies Betting Big on EVs (Views On News)

Jul 9, 2021

Three stocks to watch out as India's EV revolution gets underway.

Massive Surge in the Shares of Tata Motors Today. Key Factors Favouring the Rally (Views On News)

Oct 13, 2021

Tata Motors zooms 23% after report of TPG investing Rs 75 bn in EV arm.

More Views on News

Most Popular

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

How to Hit Rs 100 Crore Wealth in Your Lifetime (Equitymaster Wealth)

Nov 15, 2021

This is how you can achieve the ambitious goal of a net worth of Rs 100 crore.

Don't Sell these Stocks if the Market Falls (Profit Hunter)

Nov 17, 2021

These are the 3 types of stocks that you should not sell in a market crash.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

M&M SHARE PRICE


Nov 26, 2021 (Close)

TRACK M&M

M&M - MARUTI SUZUKI COMPARISON

COMPARE M&M WITH

MARKET STATS