M & M Market Cap Down 73% As Scrip Hits 4-Yr Low
Auto-sector recession and first-quarter results dragged down the market capitalisation of Mahindra & Mahindra (M&M) by a whopping Rs 3,783 crore in the last one year. The stock fell to a four-year low of Rs 134 Tuesday, a decline of 73 per cent over its previous year's price of Rs 500. This means the market capitalisation of the company is at Rs 1,385 crore as on August 11 from a healthy Rs 5,168 crore a year ago, a fall of 73 per cent.
Analysts attribute the fall to non-encouraging prospects for multi-utility vehicle (MUVs). The first-quarter performance of M&M also contribute to analysts apprehension about the future prospect of auto industry.
Though M&M managed to grow by 3.3 per cent in the first quarter of 1998-99, its net profit showed a fall of 19 per cent. Such a decline in profit has happened first time in the last seven years.
The company's tractor division, a major saviour in the past, witnessed a marginal one per cent rise in production and a minuscule two per cent growth in sales in the first quarter of 1998-99. During the period, M&M's rival in the sector, Punjab Tractor, saw a healthy 34.5 per cent rise in sales, and a hefty 52.5 per cent surge in first quarter net profit.
The first-quarter trend indicates that tractor manufacturers may face a recessionary period in the near future.
For M&M, the profit-fall in the current year may be severe. The company generates 37.54 per cent sales through tractors. Tractors contribute 91 per cent to the total sales of Punjab Tractors while Eicher draws 67 per cent of its sales through the division. This indicates that the marginal rise in tractor sales in the current year may put M&M in deep trouble.
In 1997-98, tractor sales grew by 25.48 per cent, while production increased by 23.16 per cent. In 1996-97 the sales went up by 28.24 per cent, while production moved up by 16.94 per cent. Tractor sales grew by 35.78 per cent in 1995-96, while production went up by 23.97 per cent.
The sales-profit relation for M&M was healthy when tractor sales were growing. In 1997-98, net profit grew by 20.2 per cent from a growth rate of 32.7 per cent in 1996-97, while in 1995-96 net profit increased by 45.2 per cent. The market fears that such growth may not be visible for the company in the near future led to the discounting of the share which fell to a four-year low.
M&M's MUVs have 59 per cent of the marketshare, while tractors corner 27 per cent. In 1997-98, the company's tractor sales rose by 25.5 per cent to Rs 1,463 crore, higher than the industry average of 13 per cent. It sold 67,780 units (57,379 units) in 1997-98, while Eicher, with a 10 per cent marketshare, managed an 11 per cent rise in tractor sales.
M&M's first quarter sales of MUVs fell by 4.3 per cent, while production declined by 4.7 per cent. The division saw a low sales growth rate of 9.1 per cent in 1997-98 from 28.16 per cent achieved in the previous year.
In 1995-96, MUVs sales growth was at a healthy 40.73 per cent. The production growth rate of this division was lower at 2.53 per cent in 1997-98 from a 13.41 per cent growth in 1996-97. In 1995-96, the growth rate of the sector was 37.21 per cent.