Mahindra & Mahindra Shares Surge on Bagging Contract for Defense Equipment

Mahindra & Mahindra (M&M) was up 1.4% to Rs 812.9 yesterday. This after Mahindra Telephonics Integrated Systems, a subsidiary of the company, signed a contract with the Ministry of Defence (MoD).

The MoD contract was for the procurement of 11 airport surveillance radars, along with secondary surveillance radars for the navy and the Indian coast guard.

The installation of these radars will boost the air domain awareness around airfields. They will also enhance safety and efficiency in flying operations of the navy and the coast guard.

These monopulse secondary surveillance radars are much more accurate compared to the conventional ones when several aircraft are in close proximity.

The Rs 3 bn project will be executed under the 'buy and make' category.

Under the 'buy and make' category of defence procurement, initial purchase of equipment can be done from a foreign company, followed by indigenous production through an Indian company in a phased manner. This will involve 'transfer of technology' of critical technologies according to specified range, depth, and scope.

The Ministry of Defence said the signing of this contract is an achievement of the government towards the Atmanirbhar Bharat Abhiyan (self-reliant India campaign) and the objectives envisaged in the program.

This would enable absorption of technology, skill development, indigenous manufacturing, and also boost employment opportunities.

An overview on Mahindra & Mahindra's March quarter performance

Farm equipment and utility vehicles major Mahindra & Mahindra posted a consolidated profit after tax (PAT) from continuing operations at Rs 16.4 bn for the fourth quarter ended 31 March 2021.

The company had reported a consolidated net loss from continuing operations of Rs 5.9 bn in the same period of the last year.

For the full year 2021, the company reported a consolidated PAT of Rs 37 bn compared to 27.1 bn in the previous year.

The consolidated revenue from operations stood at Rs 214.6 bn during the January-March quarter, against Rs 163.2 bn in the corresponding period of the last financial year.

Revenue from operations stood at Rs 742.8 bn for the financial year, against Rs 753.8 bn in the same period last year.

The company's board has also recommended a dividend of Rs 8.8 (175%) per share of the face value of Rs 5 each for the financial year 2021.

Market dynamics

India's defence manufacturing sector has witnessed compound annual growth rate (CAGR) of 3.9% between 2016 and 2020.

The Indian government has set the defence production target at US$25 bn by 2025 (including US$5 bn from exports by 2025).

India's defence import value stood at US$463 m for the financial year 2020 and it was expected to be at US$469.5 m in the financial year 2021.

Defence exports in the country witnessed strong growth in the last two years. India targets to export military hardware worth US$5 bn in the next 5 years.

Recent development or Investments in India's defence manufacturing industry

Foreign Direct Investment (FDI) equity inflow in the defence sector for April 2000-September 2020 stood at US$10.1 m, as per data released by the department for promotion of industry and internal trade (DPIIT).

In March 2021, the defence ministry signed a Rs 11.9 bn contract with Bharat Dynamics (BDL) and defence public sector enterprise (DPSE) for manufacturing and supplying the French-origin MILAN-2T anti-tank guided missiles.

Also in the same period, the defence ministry signed a Rs 10.6 bn contract with Mahindra Defence Systems (MDSL) for supply of 1,300 light specialist vehicles to the Indian Army.

In February 2021, the Defence Ministry was allocated Rs 70,000 crore (US$9.5 bn) for domestic procurement in 2021-22.

MoD and defence public sector undertaking (DPSU) Bharat Electronics (BEL) signed a contract for procurement of software defined radio tactical (SDR-Tac) worth Rs 10 bn in February 2021.

In the same period, at Aero India 2021 in Bengaluru, Hindustan Aeronautics (HAL) and Mishra Dhatu Nigam (MIDHANI) signed a memorandum of understanding (MoU) for development and production of composite raw materials.

In January 2021, the Institute of Nuclear Medicine and Allied Sciences (INMAS), a Delhi-based DRDO laboratory, presented Rakshita, a bike-based casualty transport emergency vehicle to Central Reserve Police Force (CRPF).

Speaking of the defence sector, have a look at the chart below which shows the top 5 military spending countries in the world as of 2019.

According to a SIPRI (Stockholm International Peace Research Institute) report, India was the third largest military spending country in the world in 2019.

Here's what we wrote about it in one of the editions of Profit Hunter.

• If you look at the chart closely, you will realise it is likely to remain among the top spenders in the coming years.
  
  It's because of the second largest spender shown in the chart, China.
  
  With rising tensions between the two countries, the incentive is strong for India to keep up with China.
  
  It all makes sense for the government to focus on this sector in a big way in the near future.
  
  The government's 'Atmanirbhar' push will get a massive boost through local defence manufacturing. This will create profitable opportunities in defence stocks for astute investors.

Co-head of Research at Equitymaster, Tanushree Banerjee keeps a close watch on stocks in the defence space. As per Tanushree, defence will be a big wealth-creating opportunity.

Back in June 2020, she recorded a video about India's best defence stocks.

You can watch the video here: The Upside in India's Best Bulletproof Defence Stocks.

How the stock market reacted to Mahindra & Mahindra's news

Yesterday, Mahindra & Mahindra share price closed at Rs 804.4 (up 0.3%) on the BSE and the NSE.

The share touched its 52-week high of Rs 952.2 and 52-week low of Rs 457 on 8 February 2021 and 12 June 2020, respectively.

Over the last 30 days, the Mahindra & Mahindra share price is up 7.1%. Over the last one year, the company's share price is up 74.4%.

The current market capitalisation of M&M stands at Rs 1 tn.

About Mahindra & Mahindra

Mahindra & Mahindra is an Indian multinational automotive manufacturing corporation headquartered in Mumbai, Maharashtra, India.

It was established in 1945 as Muhammad & Mahindra and later renamed as Mahindra & Mahindra.

The auto major is one of the largest vehicle manufacturers by production in India and the largest manufacturer of tractors in the world.

It is a part of the Mahindra group, an Indian conglomerate.

The company ranked 17 on a list of top companies in India by Fortune India 500 in 2018.

Its major competitors in the Indian market include Maruti Suzuki and Tata Motors.

For more details about the company, you can have a look at Mahindra & Mahindra's factsheet and quarterly results on our website.

You can also compare Mahindra & Mahindra with its peers.

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