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.