Slowdown looms: Analysts cut M&M forecast on weak Q3

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Slowdown looms: Analysts cut M&M forecast on weak Q3

Mahindra & Mahindra's shares fell further in early trade on Wednesday, before reversing some of its losses post disappointing third quarter results. Stung by higher input costs, M&M's net profit in October-December slid more-than-expected 10% year-on-year to Rs 662 crore.

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Mahindra & Mahindra 's shares fell further in early trade on Wednesday, before reversing some of its losses post disappointing third quarter results.

Stung by higher input costs, M&M's net profit in October-December slid more-than-expected 10% from a year ago quarter, where it had exceptional gains, to Rs 662 crore. And the road ahead for the company, especially for the tractor segment is looking more bumpy.

The utility vehicle and tractor maker reported a better-than-expected 36% rise in net sales, helped by strong demand for SUVs like Scorpio, Bolero and XUV500 and its light commercial vehicles like Gio. However, tractor sales have slowed and the management is expecting subdued demand in the fourth quarter, which will weigh on sales and earnings going ahead.

"Outlook for tractors is weak - flattish volume growth next 2 months, followed by 8-10% volume growth in fiscal 2013, a healthy monsoon being a key caveat. Raw material cost pressures have not declined meaningfully," noted Citigroup analysts Jamshed Dadabhoy and Arvind Sharma.

Here's a quick look at how analysts viewed M&M's performance in the third quarter and how they see the road ahead:

AMSEC: We expect auto sector and farm equipment segment growth to moderate in fourth quarter as compared to April-December. In FY13, auto sector will log higher volumes following new product launches in the pickup and SUV segments. However, tractor sales volumes are expected to moderate to 10% levels in FY13. Rating: Buy. Target: Cut to Rs 806 from Rs 897.

Citigroup: M&M's Q3 results disappointed. Management's quarterly commentary wasn't inspiring. Slash earnings 16% in FY13/14 to reflect higher input costs and lower tractor volumes (forecasts cut 14-16% over FY12/13). On the positive side, we incorporate XUV500 estimates (30,000 units in FY13). Rating: Neutral. Target: Cut to Rs 751 from Rs 870.

Emkay Global: We lower our volume estimates largely led by tractor segment. We factor in 5% YoY growth in FY13 versus 12% earlier for tractors. In automotive segment, we factor in 16.7% YoY growth in domestic UV segment versus 17.2% earlier. Our net sales estimate is revised downwards by 0.7%, 5.8% in FY12, FY13.  Rating: Buy. Target: Rs 815.

Pinc: With the excellent response to the XUV5OO, upcoming launch of the new Xylo and continued performance from other products in the automotive portfolio, we have increased FY13 volume estimate by 5%. At the same time we reduce tractor volume estimate for FY13 by 3%. Rating: Buy. Target: Rs 885.

Standard Chartered: While revenue momentum is likely to remain strong in the auto segment led by new model launches, the farm equipment segment is likely to witness muted performance given an expected deceleration in tractor volumes going forward. Furthermore, slower growth from its other business segments (IT, Real Estate, ancillary) is expected to keep consolidated earnings muted. Rating: In-line. Target: Rs 729.

At 11:10 hrs, M&M shares were up 0.4% at Rs 692.45 on NSE.