Mahindra & Mahindra investors hope tractors will save the day— and the year
- It seems like a foregone conclusion that the demand for cars may take much longer to recover.
- However, M&M makes a fourth of its revenue from farm equipment like tractors and their sales continue to be strong, relatively.
- The Jan-March quarter was marred by the transition to the new BSVI emission norms even before the pandemic took its toll.
Reliance Securities, a broking firm, expects the automaker to report 67% fall in its consolidated net profit.
Double whammy for automakers
After a year of subdued sales, auto companies in India were looking forward to recovering in 2020. Manufacturers were being forced to up the emission standards to BS-VI by regulators, and buyers were waiting for the new models to hit the street. But then came the coronavirus pandemic and as markets shut down across the world.
Mahindra’s Chief Executive Officer of automotive division Veejay Ram Nakra earlier said, “Our performance in March has been muted on account of the impact of the current lockdown related to COVID-19 and the disruption in our BS-VI ramp-up plan. The latter was planned between February and March but was affected due to the challenges of parts supply from global and local suppliers. We have been able to clear our BS-IV inventory, but for fewer than 100 vehicles. However, there are many vehicles that are sold, but not yet registered because of the closure of RTOs.”
Better than peers
Although, in comparison to its peers, the company has seen a speedy recovery— all thanks to its advantage of being India’s largest tractor maker.
According to the Q4 results of March 2019, the company’s farm equipment like tractors segment contributes more than 25% of the total revenue, which has held in good stead as the government allowed farming to resume sooner than other sectors.
|Stock||Growth since Dec 31|
The share price declined over 46% since the beginning of the fourth quarter, till March 31. However, since then, the share price has been on a positive trajectory and recovered almost 66%.
All eyes on the road ahead
The company said the timely relaxation of the lockdown for the agricultural sector helped the company to ensure the speedy recovery of tractor demand during May.
Although, the total tractor sales for the company declined 1% and stood at 24,341 units, as against 24,704 units May last year, any company would settle for it in the current context.
Investors hope that the management commentary will remain bullish at least for the tractors segment, as the outlook for cars seems to be a foregone conclusion as estimates, from ratings agency Crisil to the one from dealers association, signal nearly a 25% drop in sales this year.
The rural sales are expected to drive the company out of the coronavirus woes as analysts think the impact of the pandemic has been relatively less outside the big cities like Mumbai, Delhi, Chennai and Bengaluru.
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