The stock price of Mahindra & Mahindra (M&M), the country’s largest tractor maker, hit a new high of Rs 819 on Tuesday, helping the company reach the milestone of Rs 1 trillion in market capitalisation. In doing so, it overtook Tata Motors in valuation and is now the second-most valued automobile maker in the country after Maruti Suzuki.
M&M closed the day with a market cap of Rs 1 trillion, ahead of Tata Motors’ Rs 972 billion, according to the BSE. Tata Motors, which once used to be the country’s most valued automobile player, lost the coveted position to Maruti Suzuki in mid-2015. It now stands third in valuation. However, if one includes the Tata Motors DVR market cap of Rs 98 billion, the truck maker would still rank second. Maruti Suzuki, the country’s biggest car maker, has a market cap of Rs 2.76 trillion, more than the combined market cap of M&M and Tata Motors.
M&M, which thrives on the performance of its tractor division, has seen its share price rally 8 per cent in the last two weeks. The trigger: forecast of a normal monsoon first by private forecaster Skymet and then by the India Meteorological Department. That improves the prospects of farm productivity (in the kharif season), which, in turn, could leave more money in the hands of rural consumers.
M&M, the biggest player in the segment with a 43 per cent marker share stands to gain from the likely expansion of the market. In the year ended March 31, 2018, the company sold a record 304,019 tractors in the domestic market with a growth rate of 22 per cent. The country had a normal monsoon last year as well.
Jefferies, an equity research firm, last month raised the target price for M&M to Rs 860 a share from a 820 in its previous report. It also gave a ‘Buy’ call on the share, changing its earlier recommendation of ‘Hold’. The firm said many fundamental factors have improved for M&M in recent months: tractor/LCV cycles have been stronger than expected and outlook remains positive, margin has expanded by over 100 bps in FY18 (April-December), and the value of listed investments has appreciated.
Even though M&M has lost its pole position in the SUV segment to Maruti Suzuki last year, it has emerged stronger in tractors, light commercial vehicles and medium and heavy commercial vehicles. Total sales (domestic and exports combined) of all segments (excluding tractors) put together grew at 8 per cent to 549,154 units in the last financial year. LCV sales in the domestic market were at a record 206,074 units, up 20 per cent over the previous year.
Jefferies said it expected M&M to clock 10 per cent growth in both tractors and LCVs in FY19 on the higher base of FY18. “Higher government spending on rural economy and infrastructure ahead of 2019 elections is likely to sustain tractor cycle; good monsoon is an additional catalyst. We also expect LCV growth to continue. In passenger vehicles, M&M’s FY19 performance should be helped by three new launches,” the research firm said.
M&M clocked annual consolidated revenue of Rs 890 billion in FY17, earning a profit of Rs 40.50 billion. In the same year, Tata Motors, which also owns luxury car maker JLR, clocked revenues of Rs 2.74 trillion and earned Rs 75.56 billion in profits.