Mumbai: Tractor maker Mahindra and Mahindra Ltd (M&M) on Tuesday joined the elite club of companies that have seen their market capitalization soar past Rs1 trillion after its shares closed at a record high.
Mahindra shares gained as much as 2.23% to hit an intraday high of Rs819.10 a share on BSE. At closing, its market cap stood at Rs1.01 trillion. The script closed at Rs809.60 apiece on the BSE, up 1.05% from its previous close, while India’s benchmark Sensex index rose 0.26% to 34,395.06 points.
The company also became the second most valued automaker in India. Its market cap is now higher than Tata Motors Ltd, Eicher Motors Ltd and Bajaj Auto Ltd. India’s largest car maker Maruti Suzuki India Ltd remained nation’s most valuable automaker with market cap of Rs2.77 trillion.
Analysts expect M&M shares to have robust buying interest as sales of tractors are likely to continue growing at a healthy pace in the current fiscal year owing to higher government spending on rural economy and infrastructure ahead of 2019 Lok Sabha elections. A good monsoon is also likely to buttress tractor sales.
Moreover, India Meteorological Department (IMD) said on Monday that India will have a normal monsoon which is likely to boost crop prices (as determined by the minimum support price offered by the government) and rural income. IMD also said that there is very less probability of experiencing a deficit monsoon. Rainfall will be 97% of the 50-year average with a 54% probability that rains will be normal to above normal.
“In 2Ws/tractors, rural demand momentum remains strong. News flow on good monsoons and double-digit minimum-support prices’ (MSP) hike in summer crops can be additional catalyst to watch out for," said Nomura Research in a 12 April note.
M&M has reported a 46.23% jump in total tractor sales at 28,277 units in March from 19,337 units a year ago. For the fiscal 2018, it sold over 3 lakh tractors in the domestic market, its best ever performance in a financial year with growth of 22% from a year ago.
The company holds 42.9% market share in the domestic tractor market and accounts for 30% of revenue and 50% of profit.
According to brokerage firm Jefferies India, M&M is trading at 12 times of its one year forward estimates, which is at a significant discount to its peers.
Of the 42 brokers tracking the Mahindra stock on Bloomberg, as many as 40 recommended a “buy" rating and 2 have a “hold" rating.
The company has not announced yet its earnings date for March quarter. However, brokerage firm Nomura Research expects revenues to increase by 27% year-on-year led by strong 25% YoY growth in overall volumes. Ebitda margins to decline 40 basis points quarter on quarter on weaker product mix (lower tractor share) and higher commodity costs.