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We attended a call hosted by M&M to (1) clarify production cuts at three
tractor plants and (2) update investors on tractor demand. Production cut
of two days a week has been initiated to adjust inventory at the
company’s end to retail demand. The company expects demand to return
from Q1FY13 onwards to end FY13 with ~10% growth for the tractor
industry. Currently, no discounts are being offered. We expect a gradual
recovery from April 2012 onwards as cash flow from winter crop begins.
We have built in 5% growth in tractor sales for FY13 for M&M. We have a
‘BUY’ rating on the stock with a TP of INR819.
The call was led by Mr. B Mishra, Chief Executive, Tractor & Farm Mechanisation. The
key takeaways are:
• The level of finished stock at the company yard is 3‐4 weeks. Inventory with
dealers is also low given the high working capital needs involved.
• Wholesales sales are down 7% YoY since last four months whereas retail sales have
been flat. It implies that (1) overbilling was done in H1FY12 and (2) the fall in
demand was not as bad as wholesale numbers suggested.
• Production cut of two days a week has been initiated at its three plants. It is to
align production to demand. Production cut is limited to the month of March only.
• Overall sales were affected due to poor crop prices that hit farmer sentiments.
Bank financing has not been a major issue; 20% of farmers are still buying in cash.
• Fundamentals of tractor demand are still strong. It expects a recovery in tractor
demand from Q1FY13 onwards with a likely growth of ~8%, and an overall ~10% in
FY13 driven by economic revival, lowering interest rates and labour shortage.
Our View: We expect a gradual recovery from April 2012 as cash flow for farmers from
winter crop is likely to be better than the monsoon crop. For FY13, we expect a tractor
sales growth of 5%. In our view, a strong growth in automotive segment and cheap
stock valuation (ex‐subsidiaries) at 8.4x FY13E core EPS of INR54 (INR49, without
adjustment of treasury shares) also work in favour of M&M. BUY with a TP of INR819.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We attended a call hosted by M&M to (1) clarify production cuts at three
tractor plants and (2) update investors on tractor demand. Production cut
of two days a week has been initiated to adjust inventory at the
company’s end to retail demand. The company expects demand to return
from Q1FY13 onwards to end FY13 with ~10% growth for the tractor
industry. Currently, no discounts are being offered. We expect a gradual
recovery from April 2012 onwards as cash flow from winter crop begins.
We have built in 5% growth in tractor sales for FY13 for M&M. We have a
‘BUY’ rating on the stock with a TP of INR819.
The call was led by Mr. B Mishra, Chief Executive, Tractor & Farm Mechanisation. The
key takeaways are:
• The level of finished stock at the company yard is 3‐4 weeks. Inventory with
dealers is also low given the high working capital needs involved.
• Wholesales sales are down 7% YoY since last four months whereas retail sales have
been flat. It implies that (1) overbilling was done in H1FY12 and (2) the fall in
demand was not as bad as wholesale numbers suggested.
• Production cut of two days a week has been initiated at its three plants. It is to
align production to demand. Production cut is limited to the month of March only.
• Overall sales were affected due to poor crop prices that hit farmer sentiments.
Bank financing has not been a major issue; 20% of farmers are still buying in cash.
• Fundamentals of tractor demand are still strong. It expects a recovery in tractor
demand from Q1FY13 onwards with a likely growth of ~8%, and an overall ~10% in
FY13 driven by economic revival, lowering interest rates and labour shortage.
Our View: We expect a gradual recovery from April 2012 as cash flow for farmers from
winter crop is likely to be better than the monsoon crop. For FY13, we expect a tractor
sales growth of 5%. In our view, a strong growth in automotive segment and cheap
stock valuation (ex‐subsidiaries) at 8.4x FY13E core EPS of INR54 (INR49, without
adjustment of treasury shares) also work in favour of M&M. BUY with a TP of INR819.
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