Despite a fall in Q1 earnings, why analysts are bullish on Mahindra and Mahindra stocks

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Updated: August 10, 2015 4:40:33 PM

Despite the fall in the bottomline figures, market analysts believe M&M posted above estimated net profit figures for April-June quarter and the stocks may be a good bet in near future.

Mahindra and Mahindra car salesMahindra and Mahindra on August 7 reported 3.35 per cent fall in net profit figures for the quarter ended June 2015.

Mahindra and Mahindra on August 7 reported 3.35 per cent fall in net profit figures for the quarter ended June 2015. The company reported net profit of Rs 85.20 crore against Rs 881.78 crore in the corresponding quarter a year ago. Despite the fall in the bottomline figures, market analysts believe M&M posted above estimated net profit figures for April-June quarter and the stocks may be a good bet in near future.

According to Angel Broking, M&M Q1FY2016 results were ahead of estimates primarily on account of strong operating performance. M&M operating margins at 14.3 per cent surprised positively and were significantly ahead consensus estimates (estimates stood at about 12 per cent). The operating margins were commendable given the subdued topline.

The share price of the company closed 1.96 per cent lower at Rs 1,360.45.

The brokerage firm said in a research note said that it is likely to upgrade its estimates after understanding the margin sustainability from the management given the margin beat.

JM Financial is also bullish on Mahindra & Mahindra shares and believes the scrip can touch Rs 1,500 in the next few quarters.

JM Financial said that “Amongst four-wheeler players, M&M enjoys some structural advantages like significant higher exposure to rural and semi-urban markets, relatively lower competitive intensity in core UV and tractor business, immensely successful launches in UV segment like Scorpio and XUV500, recent successes like Ssangyong Rexton and all new Scorpio, strong financing arm that specialises in rural lending, and increased demand for farm mechanisation due to scarce labour.”

JM Financial further added that Ssangyong is a strategic fit for M&M’s automotive division. Ssangyong will help M&M absorb newer technology and extend its product range in India by introducing premium Ssangyong SUVs with access to foreign market through its distribution network.

M&M has entered into the fast growing small truck market with Maxximo and the passenger segment with the passenger variant of Maxximo.

Margin trajectory should hold well as auto or tractor volumes get into positive growth trajectory during the second half of the ongoing financial year , new model launches gain traction and commodity prices remain soft.

 

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