Mahindra & Mahindra: Recommendation Review

The automobile industry has been facing a difficult time since the beginning of FY13. Utility Vehicles (UVs) and Light Commercial Vehicles (LCVs) are the only segments in the industry that have been performing well. One of the companies that has a stronghold in both these segments is Mahindra & Mahindra (M&M).

We had recommended this company in Dalal Street Investment Journal Vol. 27, Issue # 19 (dated September 9, 2012). At that point, it was trading at a price of Rs 783 per share. Our bases of recommendation were the company’s presence in almost all the segments of the automobile industry, its robust performance in the buoyant segments, as also the potential value unlocking of its subsidiaries.

Although there has been no value unlocking so far and the performance of two-wheelers and trucks continues to lag, the outperformance in UVs and LCVs has boosted the overall results. We captured this trend perfectly, and since our recommendation the stock prices have gone up by 23.72 per cent.

Owing to a negative sentiment around the industry, the stock had fallen to Rs 752.30 per share. However, we remained confident about the prospects of M&M and recommended that investors book partial profits in the counter at a price of Rs 928 per share (returns of 18.52 per cent). Since the returns on this stock have been healthy, investors can book profits now and exit at these levels.