X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Tractor majors: Bottom of the trough? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Nov 15, 2000

    Tractor majors: Bottom of the trough?

    The agriculture sector, has reported very low growth rates for the last two years. In FY2000, agriculture production declined by 1.9% YoY. The tractor industry as a result grew by only 1.2% in FY2000. This year too the expectations are not very bright.

    The current year started off with drought conditions in the states of Rajasthan, Gujarat and Madhya Pradesh. For the month of April 2000 agricultural production dipped by a sharp 25% YoY. To add to this, the uneven monsoons have resulted in deficit in certain states and floods in some others. This has resulted in a decline in kharif crop production in the current year.

    For the first six months of the current financial year agricultural production has dipped by 1.9% YoY. As per the latest CMIE estimates, agricultural growth is expected to be only 0.9% for the full year. Tractor sales on the other hand have declined by 11.9% YoY in the 1HFY01. The impact of last year's negative agricultural production and current year's conditions has resulted in sluggish tractor sales in the current year.

    Share price performance in absolute and relative terms
      14th November
    2000
    3 mths
    ago
    6 mths
    ago
    1 year
    ago
    Mahindra & Mahindra (Rs) 140 174 213 390
    Absolute (%)   -19.3% -34.3% -64.1%
    Relative to BSE Sensex (%)   -12.5% -30.3% -49.3%
    Punjab Tractors (Rs) 179 247 580 1,033
    Absolute (%)   -27.5% -69.1% -82.7%
    Relative to BSE Sensex (%)   -20.7% -65.1% -67.9%
    BSE Sensex 3,944 4,232 4,107 4,629
    Absolute (%)   -6.8% -4.0% -14.8%

    As a result of the above factors, both tractor majors have reported a sharp decline in their valuations. In the past year, Punjab Tractors share price has declined by 68% YoY on a relative basis while M & M has declined by 49% YoY for the same period.

    On valuation terms, Punjab Tractors looks more attractive as compared to M & M. In the 2QFY01, Punjab Tractors has managed to actually improve its operating margins from 19.2% in the 2QFY00 to 19.3% in the 2QFY01. As it is a pure play on tractors, with a professional management and conservative financing policies the company has managed to always maintain a very high ROE.

    FY2001 EPS (Rs) P/E (x) ROE (%)
    Mahindra & Mahindra 12.7 11.0 7.2%
    Punjab Tractors 20.5 8.7 29.0%

    M & M however gives an exposure to not only tractors, but to utility vehicles (UVs) too. As M & M is not performing well in this segment too, as it is faced with declining volumes, the pressure on its margins continues. However, on a more positive note M & M's tractor volumes grew by 9.5% in the 1HFY01 and it has managed to increase its market share to 36% in a declining market. Besides, M & M also gives an investor exposure to the software segment through its subsidiaries. However, investors looking towards pure software exposure have a lot of choice in the market besides M & M.

    Given the fact that India is an agrarian economy, tractor sales are bound to improve. The vagaries of the monsoons does pose a risk to this sector. However, keeping in mind that the total arable land in India is 1.68 m hectares with a tractor density of only 10 nos/1000 hectares. The average density in Punjab and Haryana, the two mature markets for tractors is higher at 95 per 1,000 hectares. This indicates the huge potential for increase in sale of tractors.

    In the meantime Punjab Tractors and M & M are close to the bottom of the trough waiting to be picked up by investors who realize their future growth potential.

     

     

    Equitymaster requests your view! Post a comment on "Tractor majors: Bottom of the trough?". Click here!

      
     

    More Views on News

    Tata Motors Ltd: Another Disappointing Quarter, Management fails to Perform! (Quarterly Results Update - Detailed)

    Aug 14, 2017

    Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.

    Maruti Suzuki Ltd: Bumpy First Quarter. GST dents Margins! (Quarterly Results Update - Detailed)

    Aug 2, 2017

    GST realted cost impacts Margins, Management expects good year ahead.

    Hero Motocorp Ltd: Riding on the Scooters Growth, Maintains Margins! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    Good Recovery in the Scooters market, expects pick up in exports too.

    Bajaj Auto Limited: Recovery in Exports but Domestic Disappoints! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    New Export Markets picking up, Management expects good recovery in domestic Three wheeler market.

    Bajaj Auto Limited: Finishes the Year with Headwinds. Poised for a Recovery Ahead? (Quarterly Results Update - Detailed)

    Jul 6, 2017

    Ends the year on a Flat note. Expects good recovery in the exports market.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    TRACK PUNJAB TRACTORS

    • Track your investment in PUNJAB TRACTORS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    MARKET STATS