M&M shares rose over 7 per cent on Monday after the automaker posted better-than-estimated profits in the June quarter on Friday. The company refrained from big discounts and cut costs, which contributed to better margins, analysts say. (Read the full story here)
M&M shares rose over 7 per cent on Monday after the automaker posted better-than-estimated profits in the June quarter on Friday. The company refrained from big discounts and cut costs, which contributed to better margins, analysts say. (Read the full story here)
The outperformance in M&M comes at a time when the domestic auto industry is looking to rebound from last year's sluggish growth. Car sales fell for the first time in 13 years in fiscal 2013-14, but according to the Society of Indian Automobile, domestic sales are expected to grow between 5 and 10 per cent this fiscal year.
More importantly, the growth in utility vehicles (UV), where M&M is the dominant player, is likely to be much higher. Nomura estimates the UV segment to grow by 12 per cent in 2014-15 fiscal and 15 per cent in 2015-16 fiscal.
Over the next 3-4 years, the share of UVs in the overall passenger vehicle industry will likely increase to 25 per cent from 21-22 per cent currently, the company says.
In 2013-14, M&M sales were hit because the company did not have a compact SUV in its portfolio. As a result, it ceded ground to Renault and Ford, who successfully tapped the rising demand for smaller SUVs.
Ford's EcoSport is still has a waiting list, while the Duster is powering Renault's success in India. Nomura says M&M's market share in the utility vehicle segment has likely come down to 38 per cent currently from 48 per cent in 2012-13.
"New launches like Ford EcoSport and Renault Duster have been quite successful with monthly volumes of 3,000-5,000 units," say Nomura's Kapil Singh and Nishit Jalan.
But come October and M&M's first compact SUV will hit markets. Over the next few months, M&M will launch another compact SUV and an SUV.
Nomura is building in a "conservative" 2,000 units per month from new model launches. But the brokerage expects volumes to grow at 19 per cent in 2015-16 because of the new launches.
"M&M's XUV5oo has been a big domestic success and is selling nearly 3,000 units/month - if its new models are also as successful, then there could be upside potential to our estimates," Nomura says.
The optimistic outlook in the auto segment must be tempered with caution in the high-margin tractor business, analysts warn. Delayed monsoon rains have forced M&M to cut its tractor volumes growth outlook from 8 per cent to 5 per cent for fiscal 2014-15.
M&M, the world's biggest tractor maker by volume, expects the tractor sector to grow by 5 per cent in fiscal 2014-15, down from its previous forecast of 8 per cent.
However, the company is betting on good monsoon going ahead. It will launch new tractor platform before the festival season, which may lead to market share gain, the company said.
Tractor sales can surprise positively if demand from infrastructure segment, which accounted for 15 per cent of industry demand, picks up, Nomura says.
M&M shares closed 6.5 per cent higher at Rs 1,308.60 today and outperformed the broader auto sub-index on the BSE, which closed 2.65 per cent higher.
(With inputs from Reuters)
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