Mahindra & Mahindra - Contraction in auto and growth in tractors - ElaraCapital

- M&M's auto segment volume remains in a free fall in YTD FY14, with February seeing a 12% YoY drop, while YTD contraction stands at 11%, largely in line with estimates

- Personal vehicles show no respite from the sustained volume correction, given a lack of new products, high base, rising competition and an adverse demand scenario for diesel vehicles

- Pickups contracted at 3.1% YoY whereas 3W contracted 1.6% YoY. We note this trend is in line with overall LCV segment growth, which is on a moderating path

- Management noted positive impact of the recent excise duty reduction-led price cuts in the form of higher footfalls, but the same is yet to translate in volume

- On the tractor front, volume growth remains robust at 18% YoY. Management notes a healthy pickup in tractors over the past months was on the back of a good Monsoon and improved cashflow at the farmer's end

- Tractor share on a YTD basis inched up to 35.4% from 28.8% during the same period last year, which should support margin to an extent

Our view: YTD total volume for M&M contracted at 2%, implying significant earnings pressures in case of even a slight pressure on margin. We remain cautious on M&M's volume growth outlook, given there aren't any launches planned in the near term, which can erode its market share. However, given sustained recent underperformance, the stock is factoring in the same adequately and lacks downside from the current levels. We reiterate Accumulate call on the stock price.

Source : Equity Bulls

Keywords