M & M 2Q margins to decline - Views on News from Equitymaster

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M & M 2Q margins to decline

Oct 24, 2000

Mahindra & Mahindra Ltd (M & M), India's leading tractor manufacturer, will report its 2QFY01 results tomorrow. The company is expected to report a decline in profits and operating margins, as both its businesses, tractors and utility vehicles (UVs) have not performed well in the first half of the current financial year. M & M's UV volumes have declined by 18% YoY to 25,798 units for the 1HFY01. The main reasons for this performance has been the uniform sales tax at 12% and the drought like conditions that prevailed earlier in certain states. Its market share in the UV segment has fallen to 46.2% in the 1HFY01, as compared to 60.7% in 1HFY00. The reason for this fall in market share is declining UV volumes and spectacular performance of Toyota Qualis, which has eaten into the market share of other UV manufacturers.

In the tractor industry, M & M has managed to increase its volumes in a declining market. Its volumes for the 1HFY01 went up by 9.5%YoY to 40,150, while all other players saw a decline in their volumes. Its market share too rose from 28.8% in the 1HFY00 to 35.7% in the 1HFY01. 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.

UVs volumes on a decline
  Volumes (nos.) % growth Market share
Utility vehicles 25,798 -18.0% 46.2%
Light commercial vehicles 3,377 6.5% 13.9%
Tractors 40,150 9.5% 35.7%

However as the overall tractor market has been lacklustre, the company's realisations in this segment have been under pressure. Besides the costs related to Euro compliance too are being absorbed by M & M, as they do not want to pass it on to consumers. This too will put a pressure on the company's operating margins.

M & M's operating margins declined from 12% in the 1QFY00 to 8.3% in the 1QFY01, we do not expect any improvement on this front in the 2QFY01.

On the current price of Rs 136 it is trading at 5.7x, FY00 EPS of Rs 23.8.


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