Mahindra & Mahindra hits over 5-month high; stock zooms 61% in 3 months

Shares of Mahindra & Mahindra (M&M) hit an over five-month high of Rs 588, up 3 per cent on the BSE on Friday; extending its previous days’ 4 per cent rally on expectation of good June quarter earnings. In the past three months, the stock has outperformed the market by surging 61 per cent, as compared to 16 per cent rise in the S&P BSE Sensex.


For January-March quarter (Q4FY20) quarter, M&M had reported a robust operational performance. The company reported a standalone net loss of Rs 2,500 crore, due to exceptional loss of Rs 2,800 crore on account of impairment on investments due to Covid-19 and others. It had posted net profit of Rs 849 crore in the year-ago quarter. EBITDA (earnings before interest, taxes, depreciation and amortization) margins came at 12.4 per cent down just 100 basis points on quarter on quarter (QoQ) basis.


"While the overall services and manufacturing sectors are likely to see a slower recovery, the agriculture/farm equipment sector will be relatively less impacted, aided by several positive factors such as record Rabi production, higher Government procurement, timely announcement of higher MSPs, and outlook of a normal monsoon," the management said while announcing March quarter results.


However, for April-June quarter (Q1FY21), despite a around 60 per cent fall in revenues, M&M’s EBITDA margins are expected to decline by only 3.5 per cent year on year (YoY) to 10.6 per cent, cushioned by a significantly higher share of tractors at around 68 per cent (40 per cent in Q1FY21), according to Edelweiss Securities.


Since resumption of operations, the brokerage says, M&M is seeing good on-ground momentum in its key business of tractors as well as for products like Bolero and Scorpio. According to the management, its internal index for rural spend has been at the highest level for many quarters. The company is seeing huge upside in rural recovery due to the many enablers for the rural economy.


“The tractor sales have recovered to FY20 levels and are even growing in some regions due to improved outlook for farm income. It is driven by unusually strong water reservoir levels, good Rabi crop, and expectation of normal monsoons. The light commercial vehicles (LCVs) have also seen good upswing in demand post easing of the lockdown,” analysts at Motilal Oswal Financial Services said in stock report.


With one of the highest exposures to rural markets (~65 per cent of volumes), M&M is well positioned to benefit from rural recovery considering its dominance in tractor/LCV business, the brokerage firm said.