Outlook Money Outlook Money, April 2018 | Page 64

Stock Pick Why Buy? Mahindra & Mahindra Stock Performance Lags Fundamentals Sales outlook good; the company is poised to meet new regulatory norms, says Malini Bhupta n Tractor sales of 19% surprise positively in FY18 n To be ready with BS-VI compliant engines by 2020 n New UV launches to drive growth Watch Out For n After 2.5 years of upcycle, slower tractor sales can be a risk n If MHCV business does not break even in FY19 n If new launches do not do well Financials Mahindra & Mahindra BSE Sensex Net sales (` crore) 3000 43785 FY17 33006.27 28261.08 2000 40,875 FY16 3167 FY15 38945 FY15 3321 FY17 `1167.9 0 20 Mar 2015 T Note :Mahindra & Mahindra announced issue of bonus shares in the proportion of 1:1 in 2017. The record date for the same was 23 December 2017. Sensex values in points and M&M stock price in ` he Street is beginning to view Mahindra & Mahindra (M&M) in a positive light as fundamentals are looking better, as sales of tractors and light commercial vehicles (LCVs) surprised the market. In FY18 (year to date) tractor sales grew 19 per cent year-on-year, while LCV sales rose 21 per cent. Domestic tractor sales account for 30 per cent of sales and 50 per cent of profitability, while LCVs account for 30 per cent of revenues. Analysts expect tractor sales to sustain on the back of government spending ahead of the 2019 general elections. What will act as a catalyst are good monsoons. According to analysts at brokerage firm Jefferies, in the passenger vehicles segment, M&M’s performance should be helped by some new launches. Says IIFL 62 FY16 `729.8 22 Mar 2018 Graphics: Praveen Kumar .G Institutional Equities, “M&M plans to launch three new utility vehicle models in FY19; two of them before the 2018 festive season. According to the management, the addressable market would be 12,000-15,000 units per month for the upcoming MPV and 20,000 per month for the upcoming compact UV. The third model (Rexton) would be high- priced, and hence low-volume.” Even in the tractor segment, the company is looking at strengthening its position by launching a new affordable brand called Trakstar. M&M’s margin has improved by 100 basis points in the current fiscal compared to FY17. Over the past 12 months, the stock has risen by 11 per cent, compared to a 14 per cent rise in the Nifty. This gives investors an opportunity to enter the stock. Another key trigger could be its preparedness for Bharat Stage VI Outlook Money April 2018 www.outlookmoney.com 3955 FY17 FY16 OP (` crore) 1000 PAT (` crore) FY15 EPS (`) 4639 4161 3833 66.70 FY17 FY16 53.66 FY15 56.23 OP: Operating profit; PAT: Profit after tax; EPS: Earnings per share; Source: Ace Equity emission norms. M&M conveyed to analysts that it would develop petrol engines for all its top-selling models by 2020, as diesel engines would be more expensive. It is also prepared for the BS-VI emission norms deadline, which kicks in by 2020, for diesel engines too. M&M is also looking at developing high-voltage electric vehicles (EVs) with longer range and higher top speeds. It is looking at tie-ups with partners for electric systems, says IIFL. The plan is to boost EV capacity to 70,000 per annum by 2020. The company has invested `600 crore in EV technology. Its medium and heavy commercial vehicle segment, which has been making losses, is expected to break even in FY19. Based on these assumptions, analysts expect an EPS growth of 18 per cent in FY19.