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M & M's analyst meet update

Sep 9, 2000

Mahindra & Mahindra is engaged in the manufacture of Multi Utility vehicles (MUVís), tractors (upto 60 HP category) and light commercial vehicles (LCVs). For FY2000, in volume terms UVís and LCV's contributed to 52% of sales and tractors contributed 48% of sales. The following are the main points of the M & M analyst presentation:

  • M & M's Utility Vehicle (UV) volumes are down for the period April-July 2000 by 15% YoY to 17,171 units. For the same period of last year the company had sold 20,034 units. The main reasons for this performance was uniform sales tax issue of 12% and drought conditions.

  • The total industry sales were up by 10% YoY, mainly due to the expansion of the UV market by Toyota Qualis. Many car users have turned buyers of the Toyota Qualis. This has lead to the growth in the market. However if Qualis is to be excluded from the UV market, then the industry has actually declined by 13% YoY. All players except Telco have seen a decline in their volumes. Telco's timely launch of its Sumo variant has helped it.

  • The company's recent launch of 'Bolero' is expected to take up the company's market share in the second half. They are expecting an improvement from October 2000 onwards. The response for the Bolero has been good and it has waiting list of about 2 months. The company has a string of launches planned in the UV segment over the next year like Bolero's petrol version, Savaari with FRP top and diesel three wheelers.

  • In the Light Commercial Vehicle (LCV) market M & M has done well. Its volumes were up by 22.6% from April-July 2000. The industry saw an overall decline of 1% in volumes. Other players like Telco, and Bajaj Tempo also saw volumes decline. Eicher saw a 37% jump in volumes during this period.

  • The company has been absorbing the cost of Euro compliance during the year, as it did not want to pass this off to consumers. This has lead to a decline in operating margins in the 1QFY01.

  • In the tractor industry M & M has fared much better than other players. M & M's volumes went up by 1.7% YoY, while the industry saw a decline of 17.4% YoY. All other players saw a decline in volumes. Punjab Tractor Ltd volumes fell by 19.2% YoY, TAFE reported a decline of 40.6% YoY and Escorts saw a fall of 25.8% YoY. The main reason mentioned by the company for better performance is the strong efforts of the company's sales force, even in the drought like conditions.

  • M & M expects the industry to pick up in the second half from October 2000 onwards due to normal monsoons. It has captured the number one position in tractors in 16 out of 17 states. These states accounted for 95% of total industry volumes. Its market leadership continues in the 25 HP and 35 HP category.

  • In its technology ventures the company is planning on merging Mahindra Network ( a 100% subsidiary of M & M) with Mahindra Consulting ( M & M's owns 60% of this company) to avoid conflict of interests.

  • The company has given an additional 3% stake to BT in their subsidiary MBT. This has been done on a consideration of Rs 135 m for 5.05 m shares. This works out to Rs 26.7 per share. BT in return has committed business worth Rs 2.35 bn per annum. However as the IPO price is expected to be much higher than the price given to BT, it still does not seem justified to shareholders.

On the current price of Rs 199.6 it is trading at 8.4 x FY00 earnings


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