M&M slips 7% as firm expects slower tractor sales growth in FY22

While growth in tractors is slowing down after robust growth in FY21, M&M's auto segment is expected to see strong momentum in both LCVs and SUVs, brokerage MOSL said

Shares of Mahindra & Mahindra (M&M) slipped 7 per cent to Rs 790 on the BSE in intra-day trade on Monday after the management said the tractor industry is expected to grow in low single-digits during the financial year 2021-22 (FY22), with the company focused on gaining market share.

Since May 4, the stock of M&M has outperformed the market by surging 14 per cent, as compared to a 6.6 per cent rise in the S&P BSE Sensex till Friday. At 09:58 am, the stock was down 6 per cent at Rs 797, as against a 0.20 per cent gain in the benchmark index. The trading volumes on the counter nearly doubled with a combined 7.4 million equity shares having changed hands on the NSE and BSE so far.

After a weak April-May’21, M&M said it has seen a change in sentiment in the last four-five days as land preparation and the sowing period nears. All the agronomic parameters are extremely strong, the management said post-January-March (Q4FY21) results.

In Q4FY21, M&M reported a 47.8 per cent year-on-year (YoY) growth in its standalone sales at Rs 13,512 crore. On a sequential basis, the sales were down 4.9 per cent. M&M said the overall demand remained robust for the company’s products during the said quarter. However, the global shortage of semi-conductors impacted the production and sales for the quarter.

The company’s standalone EBITDA (earnings before interest, taxes, depreciation, and amortization) margins came in at 13.2 per cent, down 280 basis points (bps) quarter-on-quarter (QoQ) amid a 110 bps sequential decline in gross margins. The standalone profit after tax during the quarter under review was at Rs 48.44 crore, impacted by a large impairment hit of Rs 887 crore in relation to long term investments and lower other income.

“Supply constraints related to semiconductor shortages and localised lockdowns amid the ongoing second Covid-19 wave are set to impact near term volumes across automotive and tractor divisions. An element of normalcy returns post Q1FY22E, however, we expect the automotive segment to outperform given the refreshed push for personal mobility, intact offtake from the e-commerce industry, good response for new Thar and relatively higher base for the tractor segment. Related mix normalisation along with persistent nature of sharp commodity cost inflation is seen leading to a dilution of blended margin profile,” analysts at ICICI Securities said in the result update.

While growth in tractors is slowing down after robust growth in FY21, M&M's auto segment is expected to see strong momentum in both LCVs and SUVs (led by new products and easing of supply issues), Motilal Oswal Securities said in result update.

"The supply chain disruption is expected to ease from July-August, 2021. It doesn’t expect shortages to impact the launch of the XUV700 beyond July 2021. M&M’s valuations are still at a substantial discount to its five-year average, which captures both the pain points of deterioration in the UV market share and performance of its subsidiaries,” the brokerage firm added while maintaining a 'buy' rating on the stock.