M&M Shines When Everyone Else Whines

Q2FY13 has been docile for the automobile industry with the situation worsening than earlier. Unfavourable macro economic conditions have been acting up on most segments, with notable exceptions. Mahindra & Mahindra (M&M) has been witnessing a slowdown in tractor sales due to a poor start to the monsoon season. However, outperformance in utility vehicles (UV) has been reversing the situation for the company.

SIAM recently revised its growth forecasts from the already downgraded 9-11 per cent to 1-3 per cent for passenger vehicles. The industry body also cut the forecast for motorcycle sales from 11-13 per cent to 5-7 per cent and for commercial vehicles (CV) from 6-8 per cent to 3-5 per cent. The results of automobile manufacturers so far (Hero MotoCorp and Bajaj Auto) and sales figures of most of the players too have been unimpressive.

M&M’s sales volume (excluding tractors) over this quarter grew by 16.29 per cent over the previous year with Q2FY13 sales volume at 1,41,237 as compared to 1,21,454 in Q2FY12. Tractor volumes however saw a decline of 13.12 per cent with the total tractor sales declining to 49,840 in Q2FY13 from 57,368 in Q2FY12. The impact of these can be drawn from the quarterly results of M&M which are clearly indicative of an offset of negative growth on the tractor front.

In terms of revenues, M&M’s segment-wise ratio stands at 70:30 for automotive farm equipment sales (FES). Though FES sales declined by 6.01 per cent YoY, the automotive sales shot up by a tremendous 47.49 per cent, thus reversing the revenue decline in tractors. M&M’s revenues for Q2FY13 increased to Rs 9,252.58 crore from Rs 7,296.95 crore in Q2FY12, marking an increase of 26.80 per cent.

There was a healthy increase in margins as well with the operating profit margin and the net profit margin increasing by 69 basis points and 13 basis points respectively. With this, the net profit of M&M reached Rs 978.09 crore in Q2FY13 from Rs 761.52 crore in Q2FY12. The company managed this although there was an increase in material costs. This was mainly a result of good volumes and controlled expenditure.

With this robustness in the result displaying immunity from severe market conditions, we maintain our positive outlook on the company. Moreover, with the festive season kicked off and with the success M&M’s launch of Quanto has seen so far (5,000 bookings in the first three weeks of launch), we think investing in this scrip would definitely lead to gains in the coming quarters.