M&M’s farm equipment segment may have fueled investors hopes — but analysts aren’t too optimistic about it

BCCL
  • One of India’s largest farm equipment manufacturers, Mahindra & Mahindra is all set to announce its results on August 7.
  • Mahindra and Mahindra’s share price has rallied over 114% since March 31
  • The farm equipment segment contributes around 30% to the overall revenue of the company and is expected to show faster recovery compared to other segments.
  • Check out the latest news and updates on Business Insider.
Mahindra and Mahindra’s share price has rallied over 114% since March 31 as investors are hoping for better first-quarterly earnings than its peers.


One of India’s largest farm equipment manufacturers, Mahindra & Mahindra is all set to announce its results on August 7. The farm equipment segment contributes around 30% to the overall revenue of the company. And, it is expected to show faster recovery than other segments, on the back of strong Rabi crop harvest, procurement by state governments at remunerative prices, healthy water levels and timely arrival of monsoon. This expectation is despite the fact that the tractor volume declined 24% YoY to 65,651units in the April to June quarter.


Advertisement

M&M’s recovery is better than the peers

The Mahindra group had the benefit of catering to the farm sector at a time when the coronavirus induced lockdown had brought the urban demand for cars to a standstill during this period, and that’s a reason why it has also been the better performing of the auto stocks this year.

StockGrowth since March 31
M&M114%
TVS Motor37.39%
Eicher Motor66.53%
Bajaj Auto48.52%

After its competitor, Escorts already posted marginal profit in first-quarter earnings; investors are now watching for M&M to show a similar or better trend. However, the brokerages aren’t very optimistic about the company’s prospects, and as per the various analyst reports, M&M is projected to see a profit dip of nearly 81%.

Advertisement

BrokerageProfit growth (expected)
Prabhudas Liladher-77.30%
ShareKhan-78%
Nirmal Bang-87.70%

According to Motilal Oswal report, the company’s main challenge lies in its global subsidiaries, some of which are making significant losses. Although in January to March quarter the lockdown was just for one week, the quarter turned out to be full of losses for M&M — when the company reported a consolidated net loss of ₹3,255 crore, largely because of a one-time charge for global subsidiaries like Ssangyong.

However, there’s no such indication of further investment in SsangYong, according to Prabhudas Liladher report. But the lost sales in April and early May might drag the profit. The company sold nearly 56% less vehicles in the first quarter in comparison to what it sold last year.

M&MApril to June 2020April to June 2019Growth
Sales56,2931,29,227-56.40%

Advertisement

SEE ALSO: EXCLUSIVE: M&M Financial Managing Director gets candid about the rights issue, the bleak prospects for this year and why there should be no more loan moratorium

Escorts earnings only show that calling a rural recovery right now would be pompous⁠— all eyes will now be on M&M
{{}}