M&M: Consolidation gains

Laxmikant Khanvilkar

Mumbai, April 26 : MAHINDRA & Mahindra (M&M), flagship of Keshub Mahindra group, is one of the few auto majors whose stock has been witnessing a bullish trend on the bourses of late.

The rally in price is despite its having been in the red lately. It is only the mandatory consolidation of group companies to be effective from June 2001 that will help M&M to put up a much spruced up show.

This is because it will then bank on the its cash rich, profit-making subsidiaries that seems to lure investors at the moment. The company has gained 14 per cent over the last two days and is currently quoting at Rs 139. This discounts the company’s earnings at 8.2 P/E as against an industry average of 12.

Interestingly, the stock has gone ex-right on the BSE on March 30, 2001, without declaring the issue size or price. The company’s shareholders were to receive shares of Mahindra - British Telecom (MBT), the profit-making subsidiary, on the preferential basis. MBT had to shelve its primary issue plan temporarily due to the sagging primary market.

Although the auto industry scenario is far from encouraging, the expectations have soared following stipulation of consolidated financial performance. Accordingly, M&M will have to consolidate earnings of various subsidiaries with itself to the extent of its holding in different subsidiaries.

As for the auto industry as such, sales of commercial vehicles have declined by 12.2 per cent to 1.5 lakh units during the fiscal to March 2001.

While medium and heavy vehicles sales fell by 21.3 per cent to 87,588 units, those of light commercial vehicles grew by 4.4 per cent.

M&M is eyeing tractor companies in eastern Europe and Southeast Asia for acquisitions. Earlier, it entered into a tie-up with French automobile major, Renault, for sourcing petrol engines.

The engines are to be utilised for M&M’s forthcoming new range of utility vehicles (UVs), being developed as part of the ongoing Rs 500-crore Project Scorpio. The company has reportedly bagged a major export order.