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Bourses not kind to M & M - Views on News from Equitymaster
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  • Oct 11, 2000

    Bourses not kind to M & M

    Mahindra & Mahindra (M & M) stock has been featuring on the top five losers list on the bourses for the past couple of trading sessions. It has come off by 13% in the past 2 weeks. The main reasons for this are that its two main businesses namely tractors and utility vehicles are showing no signs of an improvement.

    M & M has fared better in the tractor industry as compared to others in the past few months. M & M's volumes were up by 1.7% YoY, while the industry declined by 17.4% YoY. 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 during this period. M & M managed this due to strong efforts of the its sales team.

    However unless the tractor industry as a whole picks up, M & M's volumes will remain more or less stagnant.

    M & M's utility vehicle (UV) volumes fell by 15% YoY to 17,171 units for the period April-July 2000. The main reasons for this performance was uniform sales tax at 12% and the drought like conditions in certain states.

    The total UV volumes went up by 10% YoY, mainly due to the expansion of the UV market by Toyota Qualis. Many car users turned buyers of Toyota Qualis, this led to the growth. However if we were to exclude Qualis from the UV market, then the industry had actually declined by 13% YoY. All other players besides, Telco saw a decline in its volumes. M & M's response for the Bolero has been encouraging and it has a waiting list of about 2 months.

      April-June 2000 FY2000
      Utility Vehicle
    Mkt Share
    Utility vehicle
    Mkt share
    M & M 13,712 48.6% 70,433 58.2%
    Telco 7,091 25.1% 31,983 24.9%
    Hindustan Motors 476 1.7% 2,649 2.0%
    Maruti Udyog 533 1.9% 8,705 7.0%
    Bajaj Tempo 1,012 3.6% 6,133 5.0%
    Toyota Kirloskar 5,377 19.1% 3,519 2.9%
    Total 28,201 100.0% 123,422 100.0%

    In the Light Commercial Vehicle (LCV) market M & M's volumes went up by 23% from April-July 2000. The industry however fell by 1% in volume terms.

    Overall for both its main segments, there was an expectation that things would be brighter in the second half, however there no signs of this yet.

    Share price performance in absolute and relative terms
      Oct. 10, 2000 2 weeks 3mths 6 mths
    M & M (Rs) 162 186 225 349
    Absolute (%)   -12.9% -28.0% -53.6%
    Relative to BSE Sensex (%)   -9.0% -9.0% -25.0%
    BSE Sensex 3,945 4,090 4,898 5,541
    Absolute (%)   -3.5% -19.5% -28.8%

    Besides the above factors, M & M's stock price has also suffered due to the fact that hype of the software sector no longer holds as much attraction as it did in the past. Also its deal with British Telecom has not be looked upon kindly by the bourses. British Telecom increased its stake from 40% to 43% in Mahindra British Telecom, at a paltry sum.

    Though the company claims that this was given in return for higher business from British Telecom, the fact that remains that these shares were placed at a deep discount to MBT's future expected IPO price. The stock markets of course needs to factor these in.

    On the current price of Rs 160 it is trading at 6.7 x FY00 earnings



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