M&M is expected to post better results in Q2

Auto industry has gone through a double whammy during the first quarter of 2021-22 and despite these challenges, Mahindra & Mahindra (M&M) posted a decent operating performance. Auto demand was subdued due to the second wave of covid and margin was under pressure due to increase in input prices, mostly because of the jump in metal prices. M&M, the largest domestic manufacturer of tractors, second largest in commercial vehicles and fourth largest in passenger vehicles, initiated price hikes to protect its margins. Since it was not possible to hike prices further in a demand challenged environment, it made several cost saving efforts to mitigate impact of input price inflation.Analysts expect the outlook for M&M to improve in coming quarters. The structural changes happening in the economy, like increasing rural and agricultural income, bode well for the tractor division of M&M. Since the monsoon till now is normal, tractor demand is expected to pick up in the coming quarters. However, the tractor segment saw bumper sales during 2020-21 and therefore, be ready for single digit growth only in 2021-22. 85966926 Its auto segment is also expected to do well with strong cyclical recovery in light commercial vehicles. Demands for SUVs remain strong and M&M has strong booking pipeline in its key SUV brands. Its recently launched products, Bolero Neo and XUV700, are also getting very good customer response. Though industry wide supply issues, like shortage of microchips, are hampering the production augmentation, these issues are expected to settle soon. M&M is a very good long-term story because it is very proactive towards the development happening on the electric vehicles front and is expected to launch at least six new models of fully electric passenger and light commercial vehicles in the next five years. Management’s effort to turnaround of international subsidiaries, mostly under auto and farm equipment divisions, have started yielding results and all international farm subsidiaries have reported pre-tax profits in the first quarter.Its valuation is now at a deep discount to its five year average because M&M, along with other auto sector companies, underperformed the market since the beginning of 2021 (see Relative Performance Chart for details). However, M&M is a conglomerate with several subsidiaries and also has presence in IT (Tech Mahindra), finance (M&M Finance), hospitality (Mahindra Holidays), real estate (Mahindra Lifespace), etc.Selection Methodology: We pick up the stock that has shown maximum increase in “consensus analyst rating” during the past 1 month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.(Graphics by Sadhana Saxena/ET Prime)

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