Analyst Corner: ‘Buy’ on M&M, disruption likely during BS-VI transition

Tractor volumes grew ~3% YoY to ~18k units (v/s estimated 16k units). We have factored in ~6.5% decline in tractor volumes for FY20, implying 9% residual growth. We see downside risk to our tractor volume estimates. UVs (including pick-ups) declined ~2% YoY to 33k units (v/s est. 30k units). Domestic passenger UVs grew ~10% YoY while the domestic pick-up segment declined ~2% year-on-year.

We estimate UV volumes to decline ~20% in FY20, implying 38% residual decline, due to expectation of disruption during BSVI transition. 3W volumes increased ~15% YoY to 5.4k units. Commenting on the performance, Veejay Ram Nakra, chief of sales & marketing, automotive division of M&M, said, “Our performance in the month of December is as per year-end sales outlook and currently we are also comfortable with our overall stock levels. As we get into the new year, we are fully equipped to roll out our BSVI products and have taken all requisite measures for a smooth transition over the next three months.”

Commenting on the performance, Rajesh Jejurikar, president – FES Sector, M&M, said, “We have sold 17,213 tractors in the domestic market during Dec’19 with a growth of 4% over last year. Tractor demand looks positive in the near term led by the expectation of better rabi output, supported by crop prices and government thrust on irrigation, rural infra and agri sector. In the exports market, we have sold 777 tractors.” The stock trades at 15.7x/14.4x FY20/FY21E consolidated EPS.

Maintain Buy.