Mahindra & Mahindra : Hold ; Price target: Rs759 :: ShareKhan PDF link

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Mahindra & Mahindra 
Cluster: Apple Green
Recommendation: Hold
Price target: Rs759
Current market price: Rs676

Tractor production cut in March 2012

Key points

• Mahindra & Mahindra (M&M) has announced a cut in production of tractors amounting to two days in a week in the current month. This is to normalise the built up of excess inventory in the system. The production cut will be undertaken at the tractor plants located at Rudrapur, Nagpur and Jaipur. The management also predicted of a flat year-on-year (Y-o-Y) growth in March 2012 and guided for an 8% growth in FY2013. 
• The subdued volume sales figures in February 2012 and a rather muted expectation for March 2012 have vindicated our bearish stance. We believe that the consensus estimates would have to be revised downwards to factor in the slowdown in the tractor segment. We see two issues - an overall slowdown at the industry level and the second would be a loss of market share by M&M. Thus, we believe that the company might find it difficult to meet its 8-10% volume growth guidance for FY2013.
• Consequently, we lower our estimates to 5% volume growth for FY2013 which leads to a cut of 5.4% in our already below consensus earnings estimates for FY2013 and FY2014. We believe that M&M would continue to underperform in the near-term. Thus, we maintain our Hold recommendation despite an upside to our target price of Rs759 per share.

Valuation
We lower our estimates to 5% volume growth for FY2013 which leads to a cut of 5.4% in our already below consensus earnings estimates for FY2013 and FY2014. We believe that M&M would continue to underperform in the near-term due to growth concerns on tractors and an overhang of higher diesel tax on the automotive segment. Thus, we maintain our Hold recommendation despite upside to our target price of Rs759 per share.

 Click here to read report: Investor's Eye