- Mahindra & Mahindra has seen its market capitalization increase by almost 30% since the beginning of this year.
- The company outperformed both the Nifty and the auto index by a wide margin in this period.
- Analysts believe there is more good news in store for the tractor maker, which accounts for 1 in 3 tractors sold in India.
Shares of Mahindra & Mahindra, India’s top tractor maker, hit a 52-week high as a rural resurgence on the back of a good monsoon outlook buoyed farmers. This, in turn, has helped Mahindra & Mahindra stock through a difficult time.
Shares of Mahindra & Mahindra hit a 52-week high, rising more than 3% as of 1:30 p.m. on June 24.
Overall, Indian tractor manufacturers sold nearly 83,000 tractors in May this year, 47% more than the same period last year, although there was a marginal monthly decline.
Farmers remain positive: high tractor sales, record fertilizer purchases support this
Despite a decline in rabi crop yields, farmers appear to be generally positive. This is evident from the increase in the prices of agricultural products, which translated into a jump in tractor sales.
The government also increased the minimum support price for kharif crops by 6.1%, compared to a 3.8% increase the previous year. Spark Capital analysts say this could lead to a nearly 20% increase in net farm income.
Farmers have also made record fertilizer purchases in April as they prepare for the kharif season. Despite slow progress in the monsoon, analysts believe water availability in reservoirs is good, encouraging farmers to plant kharif crops early.
In general, analysts expect a bumper kharif crop this year.
Easy financing, expensive labor also boost tractor sales
The easy availability of financing services has also encouraged farmers to purchase tractors on loan. Aside from banks, non-bank finance companies have also stepped up loan offerings. Mahindra, for example, has its own financial arm that offers easy loans to farmers.
Farmers are also looking to mechanize farming more, triggered by labor shortages across the country, whether due to infections or fears that new waves of Covid will force workers to stay behind.
Spark Capital analysts also suggest that non-agricultural tractor use is also on the rise, which has also contributed to an increase in tractor sales. Once again, labor shortages are the common thread here as well.
Cooling commodity prices another positive for automakers
Another reason behind the positivity in the auto sector is the cooling of commodity prices.
According to a report from ICICI Securities, key commodities such as steel, aluminium, copper and palladium are down around 35% from their April highs. This will help improve automakers’ gross margins, the report adds, as companies are unlikely to pass on the benefits of lower input costs after raising prices earlier.
|Brokerage||Recommendation||target price||upside down|
|Geojit BNP Paribas||To buy||$1,173||10%|
|HDFC values||To buy||$1,164||10%|
|IDBI Capital||To buy||$1,565||47%|
|Prabhudas Lilladhar||To buy||$1,155||9%|
|motilal oswal||To buy||$1,150||8%|
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