Motilal Oswal's research report on Mahindra and Mahindra (M&M)
Nov-14 volumes de-grew by 21% YoY to ~49,625 units (v/s est 62,314 units), impacted by ~34% YoY de-growth in tractors and ~12.5% decline in UVs (incl pick-ups). We estimate flat growth in FY15, implying ~15% residual growth or ~71,567 units.
Tractor volumes declined by 34% YoY to 15,333 units (v/s est 23,350 units), with FY15YTD de-growth of 6%. We are assuming flat volumes for FY15, implying a residual growth of 19% or 21,506 units.
UV (incl pick-ups) de-grew by 12.5% YoY to 28,585 units (v/s est 31,856 units), with passenger UVs declining by ~17% and pick-ups by 3%. We estimate just 1% growth in FY15 for UVs, implying residual growth rate of 15% or 43,226 units for the year.
Speaking on the monthly performance, Pravin Shah, Chief Executive, Automotive Division & International Operations (AFS), Mahindra & Mahindra Ltd. said, "The auto industry continues to face its sluggish demand on the back of factors such as low consumer sentiments and high interest rates. The reducing international crude prices and the subsequent lowering of fuel prices should help in revival of demand in the coming months.”
Commenting on the monthly performance, Rajesh Jejurikar, Chief Executive, FES & 2Ws, M&M said, "The tractor industry has been difficult due to delayed rains and sowing. A delayed paddy crop, low yield and low prices for sugarcane, cotton and paddy have led to a low demand and low cash in hand. There is also a base effect to some extent as Diwali this year was in October 2014 vis-à-vis in November last year.”
"We see significant downside risk to our EPS estimates, impacted by severe pressure on both UVs and tractors. While tractor is undergoing cyclical pressure, UV business is witnessing structural challenges. Based on our current estimates, the stock trades at 13.8x/11.3x FY16E/17E consolidated EPS. Maintain Neutral", says Motilal Oswal research report.
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