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Strong demand for tractors to continue
Following a 19% CAGR during FY03-07, tractor volumes in India
went through a sedate phase during FY08 and FY09 with volumes
remaining flat at 0.35mn tractors per annum. However, in FY10 and
FY11 the volume growth jumped to 27% and 25% respectively. The
factors that caused this change were 1) farm loan waiver scheme
worth Rs653bn benefiting about 36mn farmers, 2) raising of MSP for
crops, 3) RBI asking banks to increase lending to rural areas, 4)
employment guarantee scheme, 5) increasing non-agriculture usage
of tractors. The effect of these factors will continue to last over the
next couple of years causing the demand to grow in the range of 13-
15%. M&M with ~43% market share would be a major beneficiary.
Leadership position in UVs to be maintained
M&M is by far the leading player in the Indian UV industry with a
53% market share. With the next two largest players accounting for
33% of the market share, the competition is limited at price points
where M&M operates. With substantial portion of demand for UVs
arising from rural areas and M&M’s strong brand recall, UV volume
growth would remain strong for the company.
Ssangyong performance to improve going ahead
During Q2 CY11, Ssanyong sold 30,772 vehicles, highest since Q2
CY07. This trend is expected to continue considering M&M’s expertise
in the UV markets. Financial performance in Q2 CY11, however, was
plagued by higher wage costs and price hikes given to vendors.
Given M&M’s track record of cutting costs and expectations of
continued volume momentum, we expect Ssangyong to report
improved operating performance in the medium term.
Re-rating on the cards
M&M has historically been trading at a substantial discount to its
domestic peers owing to cyclicality of tractor business, exposure to
multiple business streams and losses at few of its subsidiaries. With
expected improvement in subsidiary performance and strong growth
in automotive and tractor volumes, a re-rating cannot be ruled out.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong demand for tractors to continue
Following a 19% CAGR during FY03-07, tractor volumes in India
went through a sedate phase during FY08 and FY09 with volumes
remaining flat at 0.35mn tractors per annum. However, in FY10 and
FY11 the volume growth jumped to 27% and 25% respectively. The
factors that caused this change were 1) farm loan waiver scheme
worth Rs653bn benefiting about 36mn farmers, 2) raising of MSP for
crops, 3) RBI asking banks to increase lending to rural areas, 4)
employment guarantee scheme, 5) increasing non-agriculture usage
of tractors. The effect of these factors will continue to last over the
next couple of years causing the demand to grow in the range of 13-
15%. M&M with ~43% market share would be a major beneficiary.
Leadership position in UVs to be maintained
M&M is by far the leading player in the Indian UV industry with a
53% market share. With the next two largest players accounting for
33% of the market share, the competition is limited at price points
where M&M operates. With substantial portion of demand for UVs
arising from rural areas and M&M’s strong brand recall, UV volume
growth would remain strong for the company.
Ssangyong performance to improve going ahead
During Q2 CY11, Ssanyong sold 30,772 vehicles, highest since Q2
CY07. This trend is expected to continue considering M&M’s expertise
in the UV markets. Financial performance in Q2 CY11, however, was
plagued by higher wage costs and price hikes given to vendors.
Given M&M’s track record of cutting costs and expectations of
continued volume momentum, we expect Ssangyong to report
improved operating performance in the medium term.
Re-rating on the cards
M&M has historically been trading at a substantial discount to its
domestic peers owing to cyclicality of tractor business, exposure to
multiple business streams and losses at few of its subsidiaries. With
expected improvement in subsidiary performance and strong growth
in automotive and tractor volumes, a re-rating cannot be ruled out.
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