M&M shares hit 52-week high on the back of rural revival – more good news in store

• Mahindra & Mahindra has seen its market capitalization surge by nearly 30% since the beginning of this year.
  
• The company outperformed both Nifty and the auto index by a huge margin in this period.
  
• Analysts believe there’s more good news in store for the tractor maker which accounts for 1 out of every 3 tractors sold in India.
  

Shares of Mahindra & Mahindra, the leading tractor maker in India, hit a 52-week high as a rural revival thanks to a good monsoon projection has cheered up farmers. This in turn has helped the Mahindra & Mahindra stock plough through a rough time.

Mahindra & Mahindra’s shares hit a 52-week high, surging by over 3% as of 1:30 p.m., on June 24.


Overall, Indian tractor makers sold nearly 83,000 tractors in May this year, up 47% over the same time last year, although there was a marginal month-on-month decline.

Farmers remain positive – high tractor sales, record fertilizer purchases back this up

Despite a decline in rabi crop yields, farmers seem to be positive overall. This is evident from the rise in prices of agriculture produce, resulting in a jump in tractor sales.

The government has also increased the minimum support price for kharif crops by 6.1%, compared to a 3.8% increase in the previous year. Analysts at Spark Capital say this could lead to a nearly 20% increase in net agriculture income.

Farmers have also made record purchases of fertilizers in April as they get ready for the kharif season. Despite a slow progress in monsoon, analysts believe that water availability in reservoirs is good, encouraging farmers to sow kharif crops early.

Overall, analysts expect a bumper kharif crop this year.

Easy finance, costly labour also pushing tractor sales

Easy availability of financing facilities has also encouraged farmers to buy tractors on loans. Apart from banks, non-banking finance companies have also stepped up in offering loans. Mahindra, for instance, has its own finance arm that offers easy loans to farmers.

Farmers are also looking to mechanize farm activity more, triggered by labour shortages across the country, either due to infections or the fear of new waves of Covid forcing labourers to stay back.

Analysts at Spark Capital also suggest that non-agriculture use of tractors is also on the rise, which has also contributed to an increase in tractor sales. Again, labour shortage is the common thread here, too.

Cooling commodity prices another positive for automakers

Another reason behind the positivity in the auto sector is the cooling down of commodity prices.

According to a report by ICICI Securities, key commodities like steel, aluminium, copper and palladium are down by around 35% from their April highs. This will help improve the gross margins of automakers, the report adds, as companies are not likely to pass on the benefits of the decline in input costs after hiking prices earlier.


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