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M & M: Any trigger?

Dec 4, 2000

Mahindra & Mahindra Ltd (M & M), the country's largest tractor manufacturer has been facing tough times. Though the company has managed to increase its market share in the tractor industry in the current year, the industry itself is faced with a decline in volumes. Besides, the fact that it has been losing market share in the utility vehicle (UV) segment resulted in a pressure on the company's margins in the 1HFY01. As a result the company's share price has come off by 77% from its high of Rs 630 in February this year. The hype of its software subsidiary, Mahindra British Telecom too had taken up its share price to dizzying heights and has now corrected itself.

Given that these factors are things of the past, let's see what could provide a trigger to M & M's share price in the coming months.

  • In the automotive segment, the company has a very large market share in the soft tops segment. In the 1HFY01, M & M's market share in soft tops was 82%. The soft top segment declined by 42% YoY in the 1HFY01 as four states have not issued permits for soft tops. Of these four states, the significant ones are Maharashtra and Uttar Pradesh. The company is hopeful of the issue of permits over the next few months in atleast 2 states. As and when this happens, M & M's share price will get a trigger on the back of this news.

  • In the utility vehicle segment, M & M lost market share in the 1HFY01 due to higher competition from Toyota's Qualis and Telco's Sumo variants. The company’s launch of its 'Bolero' is expected to help it garner up market share once again. However, there are no signs of this yet. M & M's UV volumes declined by 18% YoY in the 1HFY01 to 25,798 units (as a result of worse performance in the 2Q/1Q). The impact of the drought and implementation of the uniform sales tax code, as well as higher competition took its toll on M & M's market share. Any improvement in market share should provide a trigger to M & M's share price.

Besides, the above news, any improvement in agriculture would be good news for M & M's stock as it is heavily dependant on the rural market. This seems unlikely due the recent agricultural growth forecast downgrade on the back of erratic monsoons this year.

Mahindra British Telecom's IPO could also provide momentum to its stock price, provided the shareholders of M & M are given a chance to subscribe to MBT's IPO. Overall the current year seems to be a difficult one for M & M.

At the current price of Rs 142, M & M is trading at 11.2 x FY01E EPS of Rs 12.7.

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