M&M’s market cap hits Rs 100,000 crore mark, helped by market sentiment

If there is one auto major that’s grabbing the headlines right from day one of 2021, it’s got to be Mahindra & Mahindra. The stock’s market capitalisation has again hit the psychologically important one-lakh-crore-rupee mark as the stock price hit fresh two-year highs today. In January alone, the stock has gained almost 13 percent and the stock closed January 13 trade just shy of intra-day high of Rs 837 per share.

So what’s driving the party on Dalal Street for Mahindra & Mahindra? Positive market sentiment, driven by buoyant tractor sales, the recently shelved JV with Ford, prices increase in the passenger vehicle range and a strategic new model rollout plan for 2021. 

Mahindra Tractors, the world’s third largest tractor company, clocked a strong 23% year-on-year growth in domestic market sales of 21,173 units in December 2020 (December 2019: 17,213).  For the cumulative April-December 2020 period, a total of 253,284 tractors were sold, with Mahindra Tractors clocking eight percent YoY growth (April-December 2019: 234,277).Total tractor sales (domestic + exports) during December 2020 were at 22,417 units, as against 17,991 units for the same period last year.Exports for the month stood at 1,244 units.

Additionally, the company also increased prices and that also added to the positive sentiment. Speaking on the growth in the tractor sales, Hemant Sikka, President - Farm Equipment Sector, Mahindra & Mahindra had mentioned, “The wholesale volumes continued to be strong fueled by restoration of channel inventory post the festive season, announcement of hike in tractor prices by major OEMs and anticipation of sustained demand on the back of higher Rabi acreage, government of India support in Kharif procurement and rural development schemes.” 

In fact, the price hike was fairly broad-based and covered even personal and commercial range vehicles as a result of higher commodity prices. According to the management, prices were raised by 1.9 percent, resulting in an increase of Rs 4,500 - Rs 40,000, depending on the model and variant, effective January 8.  Veejay Nakra, CEO – Automotive Division, M&M explained that, “The price increase was necessitated due to unprecedented increase in commodity prices and various other input costs over the past many months.”

Rationalising investment
The other triggers that aided the stock’s upward surge include Mahindra & Mahindra shelving plans of its proposed joint venture with Ford Motor.The decision to call it quits is clearly a result of the havoc caused by Covid-19.“This particular JV got impacted by the significant upheaval due to the pandemic. The current reality is quite different from when we signed the DA. In the changed scenario, the investments would have been significantly different.”

Anish Shah, deputy managing director and Group CFO, Mahindra Group explained M&M will now focus on its core business of SUVs and its familiar markets beyond India, “This decision will allow us to focus and strengthen our core SUV business. We will also focus on India-like markets where we already have a presence and not expand into new markets for the time being.”

M&M has also revealed that it is in talks with a new investor to give up its charge of South Korea's fourth-largest carmaker, SsangYong Motor Company (SYMC). It holds a majority 74.65 percent stake in Korean carmaker.

According to industry watchers and stock market analysts that these actions will give M&M more leeway to direct funds towards product development. The company is also expected to use part of funds kept for shelved Ford JV to develop new EV platform.

That said, the company’s stock price is still significantly below its all-time highs close to Rs 1,571.40 per share that it hit on December 20, 2017.  Its monthly sales are still in negative with the latest December numbers down more than 30 percent year on year. However, the surge in new Thar bookings no doubt offer a glimmer of hope as the company strives to re-energise its revival story.