>Mahindra & Mahindra(Sharekhan)

Key points
The outlook continues to be challenging for the company’s automobile as well as
farm equipment segment. Apart from the ongoing economic downturn, the
tightening of credit by banks and financial institutions has been negatively affecting
the growth.

has been well received in the market, it clocked sales of about 4,095 vehicles
up till February 2009, while its bookings remaining strong. The roll-out of the
new products from the M&M stable is likely to continue, with the company planning
to launch the successor to Scorpio towards the end of FY2010. This is likely to be
followed by the launch of another global sports utility vehicle (SUV).

In the tractor segment, Punjab Tractor Ltd’s (PTL) volumes have been extremely
good and driven the company’s overall tractor sales in the recent times. The growth
of rural economy and the availability of credit remain the key to the future
performance of the tractor segment. There are already positive feelers from the
credit industry, which is expected to report a growth of about 3-5% in FY2010.

Mahindra and Mahindra (M&M) has slightly reduced its capital expenditure (capex)
plan to be implemented over FY2009-12 to Rs8,500 crore; of this Rs1,500 crore
has already been spent. Also, out of this amount, Rs5,000 crore has been
earmarked for the automobile business while the balance has been set aside for
investments in various other segments. The bulk of the capex (about Rs2,500
crore) earmarked for the automobile business shall be spent on setting up a
facility at Chakan. Further, constant negotiations are taking place with equipment
suppliers in order to further reduce the capex.

In future the company’s margins will depend mainly on the volume behaviour.
Though the company has been able to arrest the steep decline in volumes
witnessed in Q3FY2009, the volumes remain subdued. We believe that
operationally, the Q4FY2009 results will be much better than the Q3FY2009 results,
mainly on account of better volumes. In the automotive segment, we expect the
volumes to decline by 7.3% in Q4FY2009E as against the 24.4% year-on-year (y-o-y)
drop reported in Q3FY2009 that primarily affected the earnings.

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