Tractors to Give M&M the Traction in Medium Term
Co’s line-up of new tractors and global forays is expected to offset the muted growth in passenger car segment
M&M’s US operation touched nearly $500 million in revenue in FY17 with 10% market share in the more than 80 HP tractors in the US.
Analysts expect muted growth in the company’s automobiles segment, which accounts for over half of the total revenue. The launch of new MPV (multi-purpose vehicle) in the second half of FY18 and refreshing of several existing models may help in arresting the drop in volumes. The Street expected 4-5% volume growth in the automotive segment for the current fiscal.
On the financial side, the headline figures for the June 2017 quarter may not look impressive. However, after adjusting for non-recurring expenses, the picture is encouraging. The adjusted operating profit rose by 7% to ₹ 1,600 crore, significantly better than the street’s expectation despite higher raw material cost. In addition, the company was able to reduce the loss in the twowheeler operations which was a concern for investors. The segment loss is likely to fall to ₹ 100 crore in FY18 from ₹ 500 crore in FY17.
The stock trades at 14 times its projected core auto operations (excluding investments in hospitality and other ventures), which appears reasonable since most other auto stocks command price-earnings ratio of 18-30.