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S. Muralidhar

AT about Rs 200-205, the Mahindra & Mahindra (M&M) stock appears fully valued, given its current performance parameters. Shareholders may consider booking profits, at least partially, and can re-enter at lower levels.

The M&M stock at Rs 200 tradesat 15.9 times its latest full year earnings and at 13.7 times the annualised earnings of its first quarter earnings per share. It has doubled from the levels of Rs 100 that it traded at the beginning of this fiscal.

M&M reported a more-than-four-fold increase in its net profit for the first quarter of this fiscal. The increase in net profit to Rs 42.5 crore during the quarter ended June 2003 was attributed to strong volume growth in its automotive business (thanks largely to the success of the Scorpio), better cost-control and themassive jump in `other income'.

The company's utility vehicle sales volumes were up 39 per cent during the first quarter.

The Mahindras are aware that the first quarter performance this year will not be sustainable during the remaining three quarters. The reasons are : One, competition is expected to increase and, two, the petering out of demand from potential utility vehicle buyers that rushed into M&M's showrooms during the first quarter to make the most of the excise duty cut, will lead to a slowdown in growth in the UV segment.

With the failure of the monsoons during the last two years and the consequent crash in tractor sales, M&M's growth-driver last fiscal (and possibly this fiscal too) was the automotive division. However, instead of despairing, M&M went ahead and made aggressive export and overseas operation plans to buttress the falling volumes in the domestic market.

The company's foray into the North American market and the recently-finalised strategic alliance with Mitsubishi Tractors to source and market the latter's lower horse-power tractors under the M&M brand in the US will increase the exposure for the brand. M&M has also announced that it is in talks with Finnish tractor and farm equipment company — Valtra Tractors — for a possible joint investment.

These new initiatives should push up the company's exports performance. For the domestic market, the company has reintroduced newer versions of its Sarpanch and Arjun series of tractors. If this year's monsoon's precipitation and spread is normal, tractor sales should pick up speed towards the third and fourth quarters. In the automotive division, M&M plans to launch a couple of variants on its best-selling UV — Scorpio. The company has also launched the lower priced variant `Invader' on the Bolero to offer buyers more affordable price points at the sub-Rs 4 lakh level.

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