|Chennai||Rs. 25020.00 (0.81%)|
|Mumbai||Rs. 25890.00 (0.98%)|
|Delhi||Rs. 25200.00 (-0.2%)|
|Kolkata||Rs. 25480.00 (1.03%)|
|Kerala||Rs. 24800.00 (0.61%)|
|Bangalore||Rs. 25000.00 (0.81%)|
|Hyderabad||Rs. 25080.00 (1.09%)|
Mahindra & Mahindra (M&M) was the most impacted among automobile stocks due to the rise in excise duty on sports utility vehicles (SUVs), falling over 2.2 per cent on Budget day. The stock, however, recovered after the company announced another set of robust sales numbers (for February), with double-digit growth, in contrast to the falling sales of most other auto makers.
However, JP Morgan analysts believe the continuing fuel (diesel) price hikes and increase in taxes on SUVs will further impact consumer sentiment. Also, given the high base of FY13, the next financial year is likely to see moderation in growth and higher competitive intensity, which could keep margins in check. While most analysts have a target price in the range of Rs 860-1,000 for the M&M stock (now at Rs 878), this could be at the risk of a revision if the company is not able to improve volumes in the auto and farm equipment segments.
Though the company's operations span financial services (M&M Financial), hospitality (Mahindra Holidays) and IT services (Tech Mahindra and Mahindra Satyam), among others, 70-80 per cent of the consolidated revenue and operating profit comes from the auto and farm equipment segments. Sum-of-parts valuations, reflect this, with 75 per cent valuation given to these two segments.
Auto: Holding ground, so far
On sales front, while M&M's bread and butter utility vehicles (UV) segment is holding steady so far, farm equipment sales continue to disappoint. While UV sales are up 14 per cent year-on-year (y-o-y), tractor sales were down three per cent in February. Given that year-to-date sales are down five per cent for tractors, expect the company to end FY13 with a fall in sales volumes. The management expects tractor sales to pick up during the harvesting season, starting April. In UVs, although FY13 has seen strong growth, led by new product launches, there are some concerns on the outlook for next fiscal.
M&M has lost market share with new models being launched by competitors who want to be part of the India UV growth story. Though the new excise duty norms are a negative, models such as the Duster, which is doing a monthly run rate of 6,500, will not be impacted as its engine size is less than 1,500 cc. With Ford's Ecosport, GM's Enjoy and Maruti's SUV XA Alpha launch ahead, expect M&M to face the heat in FY14. Says Yogesh Aggarwal of HSBC Securities, "In the UV business, the company has no new significant product launches in the next 12 months, although there are more than four product refreshes. This should impact the growth rates of the UV business."