M & M Net Likely To Increase 21 Per Cent

Strong growth in rural disposable incomes will drive the net of leading Indian tractor and utility vehicle maker Mahindra & Mahindra (M&M) 21 per cent higher in the year-ended March 31, analysts said on Thursday.

Mahindra -- which is among the country's top 20 private firms -- is due to announce its 1996-97 results on June 10.

Rural demand has driven growth in the utility vehicles and tractors segment, said automobile analyst Sangeeta Mehta at Kotak Securities-Goldman Sachs. We're looking at the strong rural demand continuing in 1997-98, she added.

Mehta said increased provisions for agricultural credit in rural areas announced in the last two federal budgets, coupled with good monsoon rains that boosted incomes from agriculture, had driven up demand for Mahindra's vehicles.

A lot of credit was made available over the last two budgets, Mehta said, forecasting that Mahindra's operating margins as a percentage of revenue would rise to 11.5 per cent, from 10.6 per cent in the previous year.

Analysts said they expected Mahindra's net profit to climb nearly 21 per cent to an average Rs 2.03 billion ($56.7 million) in 1996-97, from 1.68 billion the previous year.

Some analysts said the company was expected to make a contingency provision of around Rs 180-200 million for a back payment to employees at its Kandivli plant in Mumbai.

Negotiations for a new wage settlement have dragged on for almost a year. An analyst at a foreign broking firm said Mahindra's tractor sales had grown by around 15 per cent during the year while the sales of utility vehicles had risen slightly over 20 per cent.

Sales of trucks -- a segment in which Mahindra is a small player -- had fallen by around eight per cent due to a recent industrial slowdown.

The company had good volume growth in the past year. In fact it was an exceptionally good year because of rural buoyancy, an analyst at the foreign broking firm said.

Agricultural growth was up by almost four per cent, the country had a ninth successive good monsoon and even procurement prices rose during the year, he said.

Indian agriculture is estimated to have grown at around 3.7 per cent in 1996-97, according to latest government data.

The sector performed poorly in the previous year, with agricultural production falling 0.1 per cent.

Sales growth in 1996-97 has been pretty much in line with expectations, said Rakesh Parekh, automobile analyst at Caspian Securities.

Competition is hotting up in various sectors but underlying demand is still strong. We expect sales to grow at a compound annual rate of 10 per cent over the next five years, he said.

Analyst Niraj Somaiya at securities firm H G Asia, in a recent report, cited brand loyalty, strong distribution and competitive pricing, new launches and an adaptable management among investment positives.

In the tractor segment Mahindra will maintain its dominant position due to its strong brand image and distribution network, he said.