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Mahindra & Mahindra Ltd (M&M) (updated - 03 June 2009)
The anticipated spends on infrastructure and expected investments in agriculture should come as ashot in the arm for Mahindra and Mahindra’s farm equipment, pickups and light commercial vehicles.
Already, the success of the Xylo has meant better sales of utility vehicles and there’s little reason why the momentum should not sustain.

All in all, the imminent recovery in the economy suggests a far better performance for the company than was the case even six months back, when it appeared that volumes would continue to fall at least in the first half of this year.

The numbers for the month of May may have been somewhat subdued- -the year- on -year growth for the automotive segment came off fairly sharply but it’s only after the election results that consumer confidence would have started improving. Therefore, on the low base of 2009-10, it’s possible that UV sales could grow in strong double digits this year.

Of course much would depend on how quickly the economy revives but rural spends don’t seem to have dropped too much and, therefore, tractors too should see better demand than they did last year.

Now that credit seems to be more easily available and interest rates too are falling, the company’s borrowings don’t seem to be too high-analysts estimate M&M’s total debt to equity at 0.8 times which is reasonable. With cash flows only expected to ease from here on, the pressure on the balance sheet should reduce.

The company doesn’t intend to spend too much by way of capital expenditure so it’s unlikely it will dilute equity to raise resources. With prices of commodities easing, the raw materials bill should fall resulting in a slightly higher ebitda (earnings before interest, tax and depreciation) margin of around 14 per cent for 2009-10.

Merrill Lynch expects M&M’s sales in the current year at just over Rs 28,000 crore while net profits are estimated to come in at around Rs 1900 crore.

At Rs725, the stock trades at an EV/ebitda of around seven times in keeping with the historical average.
source - BS

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Mahindra & Mahindra Ltd (M&M) (updated - 02 April 2009)
At close to 20,000 units, it’s an increase of almost 30 per cent over March last year. Of course, it’s hard to say whether the momentum will hold over the next few months; after all, March is the second-best month of the year for passenger vehicles as Pawan Goenka, who heads the automobile business at M&M, points out. This is why he too is circumspect about how demand will shape up in the coming months. Given that the macro economic environment hasn’t really improved, it’s possible that demand for passenger vehicles may stay subdued for a few more months. Nevertheless, the success of the Xylo, for which M&M found nearly 3,200 takers in March, should make it easier for the company to weather the storm. The company’s other models including the Bolero, too are clocking fairly good volumes but of course, their sales are higher by just about 10 per cent.

The automotive business, comprising both UVs and LCVs, has been under a fair bit of pressure. In the December 2008 quarter, it posted an EBIT(earnings before interest and tax) loss of around Rs 10 crore, partly because of weaker sales numbers and partly because raw material costs were high. The tractors segment stayed profitable but despite that, M&M’s operating margin collapsed to 1.5 per cent compared with 11.5 per cent in the December 2007 quarter.

The March quarter should see some M&M bounce back - revenues could be up by about 15-20 per cent sequentially. Without doubt, 2008-09, has been a bad year but 2009-10 should be better; M&M is expected to report standalone revenues of close to Rs 13,800 crore compared with around Rs 12,000 crore in 2008-09. The stock has recovered smartly from its lows last December to move up by over 60 per cent and at Rs 395, trades at close to 12 times standalone estimated earnings for 2009-10.
source - BS

Mahindra & Mahindra Ltd (M&M) (updated - 11 Aug 2009)
With news that at least half-a-dozen states have had poor rainfall, the Mahindra and Mahindra (M&M) stock fell 9 per cent on Monday. The stock had rallied smartly with the rest of the market over the past couple of months to a high of 943 early last week. Since then, it has lost nearly 20 per cent. Should the monsoon turn out to be much weaker than normal, it would undoubtedly hit sales of tractors, which accounted for nearly half the company’s sales in the June 2009 quarter.

Even if a fair share of tractors is now used for non-agricultural purposes, industry watchers point out that the demand will certainly drop, hurting the company’s sales volumes. At the end of July, M&M was believed to be holding tractor inventories of around three weeks, which is normal.

Tractors are a highly profitable business for M&M. In fact, it was better-than-expected profitability of the farm equipment segment, which posted an EBIT (earnings before interest and tax) margin of nearly 17 per cent, that resulted in strong earnings for the auto major in the June 2009 quarter.

The farm segment included number for Punjab Tractors (PTL), which was merged with M&M in August last year and, therefore, the results are not comparable with those for the June 2008 quarter. Nevertheless, the strong volumes pushed up revenues while lower prices of key inputs such as steel, aluminium and plastics helped bring down the raw material bill.

The PTL merger should continue to yield synergies but the 14.4 per cent operating profit margin that M&M managed in the June 2009 quarter could slip to around 12 per cent in 2009-10 given that raw material prices are inching up and because there could be some pressure on the top line in the coming quarters.

Also, while the Xylo has turned out to be a popular model and will drive UV volumes in the current year, it’s also true that the elections helped create some extra business for M&M in the last quarter. All in all, the impact of the monsoon will be crucial for the company. At the current price of Rs 758, the stock trades at around 12.5 times estimated 2009-10 consolidated earnings and is not cheap.
source - BS

Mahindra & Mahindra Ltd (M&M) (updated - 10 Sept 2009)
The Mahindra and Mahindra stock has had astrong run, gaining 164 per cent between March and now, compared with a rise of 87 per cent for the Sensex. However, over the past months, the price has remained more or less flat. That’s mainly because of concerns that a less-thannormal monsoon in four or five states could hurt sales of farm equipment, a profitable business for the company.

Tractors now account for around half the company’s sales and even if a sizeable share of tractors is now used for non-agricultural purposes, a weak monsoon could result in a fall in demand. Tractor volumes in August were somewhat dull, rising 2 per cent year-onyear, though it’s true they came off a high base and, as industry watchers point out, there was also a seasonal effect.
In the current year, tractor volumes should rise 6-8 per cent. In the June quarter, the profitability of the division was strong with an

EBIT (earnings before interest and tax) margin of nearly 17 per cent.
Of course, the farm segment included numbers for Punjab Tractors, which was merged with M&M in August last year and, therefore, the results were not strictly comparable with those for the June 2008 quarter. Even on a standalone basis, M&M’s tractor volumes weren’t as robust as they were in July. Exports were also disappointing. However, M&M’s utility vehicles did well in August, posting a remarkable growth of 42 per cent yearon-year, driven by all models, which resulted in automotive volumes increasing by 15 per cent.
At the current price of Rs 836, the stock trades at 13.7 times estimated 2009-10 consolidated earnings.
source - BS

Mahindra & Mahindra Ltd (M&M) (updated - 30 Oct 2009)
Mahindra and Mahindra (M&M) was expected to post a good set of numbers for the September 2009 quarter, given that the company has recorded high increases in terms of volumes for both utility vehicles (up 44 per cent) and tractors.

Stand-alone revenues were up 35 per cent at Rs 4,465 crore, with the company having reaped the benefit of the festive season that kicked in earlier this year. While the expansion in the operating margin (OPM) on a year-on-year basis was expected, given that raw material prices have come off sharply, its rise to 18.24 per cent has surpassed expectations.

The share of raw materials to sales during the quarter has come down by 630 basis points. Clearly, the synergies from the merger of PTL are paying off and the company is able to save a significant amount on the cost of production, thanks to the much higher scale of operations. In the utility vehicles space, M&M now has a share of 65 per cent, having gained 1,000 basis points over the past year. Contrary to expectations, the Xylo hasn’t eaten into the share of the Scorpio, and Bolero continues to be its best selling model.

While the outlook for the automotive sector continues to be fairly bright, given that rural incomes remain strong and urban markets are looking up, what could start pinching is the rise in the prices of raw materials, especially steel strips and tyres. However, it’s unlikely that volumes would suffer, unless the company passes on the costs to consumers through price hikes. As for farm equipment, with 40 per cent of rural incomes not dependent on agriculture, a weak monsoon shouldn’t hurt demand from the hinterland. Besides, the government’s focus on rural India is expected to put money in the pockets of rural consumers.

The M&M stock has had a strong run, gaining 228 per cent since the start of the year, compared with amove of 62 per cent for the Sensex, though there was a brief period in between when it underperformed the market on concerns that a weak monsoon would hurt sales. Analysts had a sumof-the-parts valuation for the stock of about Rs1,000 and it’s unlikely this would be upgraded significantly.
source - BS