Stock Review: Mahindra and Mahindra

THE JUNE sales of Mahindra and Mahindra show the company has emerged an outperformer in a sector, battling slowing sales. After a rather dismal fourth quarter, the tide has seemingly turned.

The company reported a strong 32 per cent year-onyear growth in June sales to 58,314 units. While domestic sales were up 29 per cent at 33,772 units, exports grew 51 per cent y-o-y to 1,812 units. The big surprise came from tractors, which shot up by 37 per cent to 22,730 units. A lion's share of this was accounted by domestic sales, up 40 per cent at 21,552 units. "We were expecting the company to clock close to 18,000 units, but by crossing the 20,000mark, it has taken tractor sales to a new orbit," says Sharekhan auto analyst Deepak Jain.

M&M is a strong rural India story and this will help the company tide over the slowdown. The farm equipment sector is estimated to grow 11-13 per cent in FY12 on expectations of a better monsoon. What's also impacting demand for tractors is increase in farm mechanisation caused by labour shortage. Rural demand is expected to sustain, irrespective of the monsoon.

Apart from tractors, M&M has posted strong volume growth across all product segments. Its recent entry into the low-cost tractor category (launch of Yuvraaj), launch of the 1.2-tonne Genio pick-up and the passenger vehicle variant of Maxximo are likely to further boost volume going forward.

In the fourth quarter, withdrawal of VAT benefits under the special package schemes by the Maharashtra government for vehicles sold outside the state proved a drag on profitability. The company, say analysts, is expecting partial rollback of the VAT reversal decision shortly. In case this happens, a positive for the company.