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.
M&M: Testing times - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 14, 2001

    M&M: Testing times

    FY01 was a disappointing year for auto companies and Mahindra & Mahindra (M&M) was no exception. Though the company managed to increase volumes and market share through new product introductions in FY01, profits have come under pressure. And the trend is expected to continue in the current fiscal also. Here we take a look at the performance of the industry and M&M in 1HFY02 and the prospects for the rest of the year.

    The tractor industry, which grew at a CAGR of 16% between 1994-98, has slowed down in the last two years. Industry volumes plummeted in FY01 by 8.7% due to unfavorable monsoon and natural calamities in some states. For the current year, the demand scenario is even worse. The first half volume of 90,351 is lower by 19.6% as compared with the corresponding period of the previous year and is also the lowest in the last seven years. The North Eastern states, one of the key markets for tractors, have also slowed down (1HFY02 volumes fell by 16.5%). Though M&M is still the market leader in the tractor segment with a market share of 29%, this is significantly lower than 35% share in the same period last year.

    Industry performance...
    (Nos) Apr-Oct'00 Apr-Oct'01 Change
    Utility Vehicles 66,323 65,968 -0.5%
    LCVs 28,322 24,565 -13.3%
    Tractor 135,568 107,658 -20.6%
    Total 230,213 198,191 -13.9%

    Competition in the UV segment has also gone up substantially in the current year. Toyota's Qualis in the hard top urban UV market has captured close to 20% of the overall UV market. Telco's aggressive launch of its 'Sumo' variants has had a negative impact on M&Mís sales. M&M's market share fell to 45% in FY01. But the company's new model 'Bolero' has performed very well in recent months and is expected to stem the slide in market share.

    M&M's performance...
    (Nos) Apr-Oct'00 Apr-Oct'01 Change
    Utility Vehicles 30,980 30,195 -2.5%
    LCVs 3,812 2,976 -21.9%
    Tractor 48,515 33,554 -30.8%
    Total 83,307 66,725 -19.9%

    But M&M has been concentrating on reducing interest costs. During FY01, M&Mís interest costs declined by 20% YoY. The company achieved this by retiring Rs 2.8 bn of higher cost debentures in FY01 and refinanced this by taking on long-term debt of Rs 2 bn at more competitive rates of interest. M&M is also taking measures to reduce operating costs in the current financial year. It has launched a voluntary retirement scheme for its workers and employees at its plants and offices in Mumbai. As on July 30, 2001, around 2,263 employees (32% of total workforce in Mumbai) had opted for the scheme. In 1QYF02, its overall operating expenses fell by 14% YoY. The trend continued in 2QFY02 also.

    Though indications are for a higher kharif output in the current year, the farm prices are expected to fall by 2% in light of higher foodstock with the government. The government also has plans to lower procurement prices, which is one of the key factors that drive tractor demand. In that case, even if volumes gain pace, value growth seems unlikely as players have expanded capacity in the last two years aggressively (this was also aided by the entry of new MNC players in the Indian market). It remains to be seen whether the new model introductions by the company in the premium-end of the lower segment and expansion of 'Arjun' brand would result in higher volume growth both in the current year as well as FY03. We expect the company to register a 13%-15% drop in sales and a 70% drop in profit for FY02. However, margins would increase by 100-150 basis points largely due to the cost reduction measures undertaken by the company.

    M&M currently trades at Rs 99 implying a P/E multiple of 30x FY02E earnings.



    Equitymaster requests your view! Post a comment on "M&M: Testing times". Click here!


    More Views on News

    Mahindra & Mahindra Ltd: Robust Performance amid Uncertainties! (Quarterly Results Update - Detailed)

    Jul 4, 2017

    The Growth in the Farm Segment offsets mediocre performance in the auto business.

    Mahindra & Mahindra Ltd: Tractor Demand offsets the Notebandi hit Auto Segment! (Quarterly Results Update - Detailed)

    Mar 20, 2017

    Mahindra & Mahindra has announced its financial results for the third quarter of the financial year 2016-17 (2QFY17).

    Mahindra & Mahindra Ltd: Tractors Demand Upbeat, Gaining Market Share in Auto (Quarterly Results Update - Detailed)

    Nov 22, 2016

    Mahindra & Mahindra has announced its financial results for the second quarter of the financial year 2016-17 (2QFY17). During the quarter, revenues grew by 15.6% YoY and adjusted net profits grew by 18.5%.

    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.

    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.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    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...

    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


    Aug 18, 2017 02:26 PM



    Detailed Financial Information With Charts