Mahindra & Mahindra (M&M), India's largest tractor maker, has demonstrated that high base effect cannot be a deterrent to outperform the industry's growth, even during challenging times.
M&M's tractor volume growth in the last one year has risen to 20.3% versus the industry average of 8.36%. Subsequently , the company also gained nearly 230-bps market share over the period, taking it to an all-time high of 43.3% in the September quarter.
M&M has been able to outpace the industry's tractor sales growth with the introduction of new models. Aiding the sales was normal monsoons. Andhra Pradesh, Telangana, Maharashtra and Gujarat, where M&M holds a dominant position in the tractor segment, registered higher sales during the quarter.
M&M's management recently upgraded its industry tractor volume guidance for the current fiscal to 20% from 15% earlier. It expects there will be some moderation in growth in the December quarter due to the government's demonetisation move, but volumes are likely to rebound from the March quarter. For M&M, market is factoring in tractor volume growth of 25% and 12% in FY17 and FY18, respectively. Tractors account for almost a third of M&M's total sales.
M&M's tractor segment margin expanded by 180 basis points to 17.7% in the September quarter, enabling the company to report margin improvement despite the fact that its automotive segment's margin dropped 130 basis points to 8.3%.
Meanwhile, M&M is planning to launch two new tractor models in the 20-50HP segment in the next one year.
On the UV front, the company is pursuing several steps to arrest the fall in market share including introduction of a petrol variant of Scorpio and a 1.5-litre petrol engine. It will also launch two models in the UV segment.
The stock is trading at 13 times its FY18 core auto earnings -which appears reasonable given that it is available at close to its long-term average valuation. The Street would have a more constructive view on the stock based on the company's bullish undertone and the upgrade of its tractor volume guidance. However, the demonetisation move has contained optimism of investors.
Stand-out stocks and stand-out companies seldom get noticed in troubled times. ET delves into financial performance of India Inc every week to identify stocks and companies that have bucked the trend to emerge stronger. This week, we present M&M.