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Last Updated : May 30, 2019 01:26 PM IST | Source:

CLSA downgrades Mahindra's on weak Q4 show, other brokerages cut target

M&M management guided for single digit growth (5 percent) in tractors in FY20 and expects a decline in tractor industry in Q1

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Mahindra and Mahindra shares fell 2 percent intraday on May 30 after waning tractor demand and sharp fall in legacy SUV volumes hit operating earnings in Q4.

Hence, most global brokerage houses slashed price target. CLSA downgraded the stock and cut target price by 19 percent on likely underperformance.

The stock was quoting at Rs 659.50, down Rs 12.75, or 1.90 percent on the BSE at 1220 hours IST.


M&M's profit fell 16 percent as earnings before interest, tax, depreciation and amortisation dropped 6.4 percent with margin contraction of 160 bps in the quarter ended March 2019 YoY, dragged by tractor business.

Farm equipment segment continued to struggle with margin falling for the third consecutive quarter. Tractor business declined 13.4 percent YoY with its EBIT falling 28 percent and margin down 330 bps in Q4 while the auto segment registered a 12 percent growth YoY with margin expansion of 80 bps.

Management guided for a single-digit growth (5 percent) in tractors in FY20 and expects a decline in tractor industry in Q1. The dealer inventory of tractors is at 4-5 weeks, which is largely within range, it said, adding BS-6 preparation is on track.

Here is what brokerages say about M&M earnings:

Brokerage: CLSA | Rating: Underperform | Target: Rs 690 | Return: 3 percent

M&M's operational outlook has deteriorated, led by weakening tractor industry demand and a sharp fall in legacy SUV volumes eating into the benefit of new launches. Its higher exposure to diesel also makes it more vulnerable to upcoming emission norms.

After 10-13 percent volume and EPS CAGR in the past three years, we see a muted 2 percent volume CAGR and a 12 percent EPS decline over FY19-21. We cut FY20-21CL EPS by 14-19 percent and are 17-28 percent below consensus. Its 11.4x FY21CL auto PE is undemanding, but the stock is unlikely to perform given multiple headwinds.

We downgraded from buy to underperform and cut target price from Rs 850 to Rs 690.

Brokerage: Citi | Rating: Neutral | Target: Rs 720 | Return: 7 percent

We maintain neutral stance on the stock and have slashed price target to Rs 720 from Rs 740 as peaking tractor cycle made it difficult to be positive.

We increased FY20/21 EBITDA estimates by 1-2 percent but cut FY21 PAT estimate by 2 percent.

Brokerage: Jefferies | Rating: Hold | Target: Rs 780 | Return: 16 percent

We have a hold rating on the stock with a target price at Rs 780. We build in 10 percent decline in domestic tractor volumes for FY20.

M&M beat in revenue and EBITDA, but multiple headwinds remain.

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First Published on May 30, 2019 01:26 pm
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