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Home >Markets >Mark To Market >Higher tractor sales, defence order book drive M&M stock

Mahindra and Mahindra Ltd’s shares have trebled from a year-ago. The well-performing tractors business helped beat returns of some of its peers. Recently, the company also won a large order worth 1,056 crore from the ministry of defence. M&M’s subsidiary Mahindra Defence Systems Ltd (MDS) will be manufacturing and supplying armoured tactical vehicles (LSVs) for the Indian Army.

The defence subsidiary has not been getting substantial valuations, and its rising order flows will certainly help, said analysts. The company’s prospects in tractor and utility vehicle sales are also growing.

Robust growth
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Robust growth

Mitul Shah, vice president (research), Reliance Securities Ltd, said his positive stance on the company is led by strong growth in the tractors segment and efforts on improving capital allocation. M&M has been cutting exposure to loss-making ventures over the past year.

The company continues to post strong growth in tractor sales and the outlook remains firm. Rural incomes have improved after two successive good monsoons and good rabi acreage. In the December quarter, the company’s tractor volumes grew 19% year-on-year. The momentum remains strong, with volumes growing 24% in February. Utility vehicle sales rose as much as 44% in February, higher than 11% growth in the third quarter.

In the auto segment, new launches of XUV 500 and Scorpio will drive sales in FY22, said analysts at HDFC Securities Ltd. M&M is likely to focus on relatively ‘premium’ brands in the future, while exiting the entry-level SUV segment, said analysts.

As the two segments continue driving growth for now, sales in the commercial vehicles (LCV) and three-wheeler (3W) segments have remained soft. All eyes will be on recovery driving growth in the LCV and 3W space. Meanwhile, rising commodity prices continue to pose challenges, so do supply constraints for semi-conductors. Thus, the Street will also be eyeing price hikes to offset the headwinds.

The capital allocation exercise is more or less complete, point out analysts at Motilal Oswal Financial Services. In Q3FY21, losses of international subsidiaries (ex-SMC) reduced to 86 crore compared to 465 crore in Q3FY20. Also, the firm had taken impairments pertaining to its subsidiary Ssangyong Motor Co., besides additional impairments for SsangYong are also not expected.

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