Company Background

Mahindra & Mahindra, M&M, the major auto maker in India, is the flagship of the Mahindra Group. M&M is truly a multi product company with global presence, credible technical tie up and world class products to gain foot even in most developed auto markets.

The Company was set up in 1945 as Mahindra and Mohammed. The company first traded steel with suppliers in England and United States. The company began assembling complete knock down Jeeps in 1949. The company soon branched out into manufacturing agricultural tractors and light commercial vehicles. M&M is known for utility vehicles and tractors in India and operate two main units. Its automotive division, the company’s oldest unit founded in 1954, makes jeeps and three wheelers. M&M’s farm equipment sector, formed in 1963 during India’s green revolution, manufactures tractors and industrial engines. M&M also produces military vehicles. The company has eight plants located throughout India.

M&M rapidly grew from being a maker of army vehicles to major automobile and tractor manufacturer. M&M initiated a process of product enhancement and globalization. It made strategic acquisition of plants in China and the United Kingdom and has three assembly plants in the USA. M&M has partnerships with global companies like Renault, Nissan, International truck and Engine Corporation, USA. In order to increase its presence in the overseas market M&M had bought an Italian auto design and engineering firm. M&M made its entry into the passenger car segment with Logan in April 2007 under the Mahindra Renault Joint venture. M&M will make its maiden entry in to heavy trucks segment with Mahindra International, the joint venture with International Truck, USA.

Forbes has ranked the Mahindra group in its top 200 list of the World’s Most Reputable Companies and in the top 10 list of Most Reputable Indian Companies. In 2007, the company has been honored with the Bombay Chamber Good Corporate Citizen Award. Mahindra’s Farm Equipment Sector has recently won the Japan Quality Medal, the only tractor company worldwide to win the Deming prize.  M&M has been recently awarded the “Excellence in Innovation” for the innovation and building innovation into the fabric of its Business.

Industry

A well developed transport network shows a well developed economy. As India’s transport network is developing at a fast pace, its automobile industry also growing at a rapid speed, occupying an important place on the ‘canvas’ of Indian economy. It is also paving employment opportunities to lakhs and lakhs of people. Indian auto industry includes the manufacture of trucks, buses, passenger cars, defence vehicles and two wheelers etc. The industry can be broadly divided in to the Car manufacturing, two wheeler manufacturing and heavy vehicle manufacturing units. India ranks second in the world’s largest two wheeler manufacturers, fourth largest in the commercial vehicle sector, and world’s eleventh largest passenger car producer.

The Government permitted investment of 100% FDI in Indian auto industry in 2002 made the industry easily accessible and attractive for global players. Many foreign companies have been investing in the Indian Automobile Market in various ways such as technology transfers, joint ventures, strategic alliances, exports and financial collaborations. The auto market in India can boast of attractive finance schemes, increasing purchase power and launch of the latest products.               

The future of Indian Automobile market is bright as it looks forward to manufacturing and implementing new innovations such as electric cars as provided by Reva, alternate fuels like CNG and LPG.  The Indian Auto industry with an overall growth of 17% was marginally hit by the high interest regime, slowing down the growth of sales. But the sector now seems to see a turn around on the expectation of easing of the interest rates in near future and the tax rebates offered in the budget. The auto sector has been seeing strategic partnerships, mergers and acquisitions, which are expected to fuel up the sector soon. . Indian Automobile market is expected to grow at a CAGR of 9.5% amounting to Rs.13,008 million by 2010. Car stock per 1000 population is expected to increase at a CAGR of 9.14% with in 2010.New passenger car registration is expected to grow at a CAGR of 11.41% during the forecasted period from 2007-2010.

Financials

The key financial indicators of the company’s past 5 quarter are given below:

M&M reported its Q3 results with a good growth in net profit margins although it has experienced slide in revenue and gross profits. This is attributable to excellent over head control..  The overall growth in this Q3 is due to the increase in the passenger car segment and tractor segment. The sales of the new launch Logan also fuelled the growth of company.     

      M&M consolidated its leadership position in the automotive segment substantially in February 2008.Scorpio sales including exports, grew by 48% in February 2008 with the sales of 3,909 units as against 2,637 units for the corresponding period last year. Cumulative M&M auto sales including exports grew to 2,06,673 vehicles as against 1,57,606 vehicles for the corresponding period last year. Total sales including exports grew by 43.1% in February 2008 numbering 19,675 as against 13,747 in the corresponding month last year.

Outlook

In recent months, Mahindra has been outbid by rival Indian auto maker TATA for the right to acquire Jaguar and Land rover from ford. Mahindra is pursuing an aggressive product expansion program that will see the launch of several new platforms and vehicles over the next few years, including an entry level SUV designed to seat five passengers and powered by a small turbo diesel engine. Later in 2008, it will unveil the all-new Ingenio SUV, which will be joined in 2009 by a pickup derivative. Mahindra is gearing up to sell versions of its older Scorpio SUV and pick up next year in North America. The company also planned to offer a diesel-hybrid power train in 2010.It is also planning to launch CNG & LPG versions of Alfa within in few months. Planned capacity expansion and new launches and good performance in the tractor sector present a good earning prospect. Further to bolster its image of catering to all segments of auto, Mahindra in collaboration with Renault is set to launch  a small car at a price of Rs. 1.3 lacs pitting it against Tata’s Nano.

Investors, especially, short term traders have good opportunity to buy this stock at the current rates as the charts indicate immediate break out. The long term investors can lock a portion of planned monies now and continue to add on to the portfolio in the unlikely event of the stock seeking lower levels at its support price of  Rs. 650.