Compared with an overall negative growth of 0.3 per cent, the tractor sales recorded a 7.37 per cent fall to 17,183 units. While this performance can be considered better than that of Escorts and HMT (both these companies have recorded a fall of 13.3 per cent and 24.5 per cent respectively), compared with Punjab Tractors and Eicher, it is far from impressive. While Punjab Tractors recorded a sales growth of 28.9 per cent, Eicher's sales grew by 12 per cent.

While Mahindra & Mahindra managed to maintain its operating-profit margin, the net profit was down by 19.39 per cent to Rs 35.01 crore, mainly on account of higher interest burden and depreciation. Interest cost was up by 30.8 per cent to Rs 36.67 crore and depreciation rose by 31.96 per cent to Rs 27.25 crore.

Signs of higher interest were evident from the annual report for 1997-98. As on March 1998, total borrowings were up by 30 per cent to Rs 1,335.10 crore. Funds blocked in working capital was the prime reason for this. As a result of slowdown in demand during 1997-98, the average credit period given to the customers has risen from 22 days to 48 days. Similarly, inventories as a percentage of sales increased from 11.8 per cent to 12.04 per cent.

While the overall performance of the company can be considered satisfactory, the stock market is hardly impressed and the stock has recently touched its 56-month low of 134. The fall in the stock price was backed by higher volumes.

In fact, the stock has lost 73 per cent of its value in the past one year, which is much higher than other industry player, Telco. The stock price of Telco has also recorded a fall of 75 per cent, but in the last two years.

Although it would be unfair to compare Mahindra's performance with Telco, M&M's shareholders have lost much more than that of Telco's in the past one year. During the past 12 months, despite being a better performer, the damage to the stock price of Mahindra has been higher than that of Telco.

This was mainly due to the fact that Telco's HCV segment was under pressure for more than one year, and the performance of the utility segment, where Mahindra also has a presence, is also under pressure for quite some time now.

The tractor industry, however, has done well in the past three years. In fact, it was the tractor division which has helped M&M during 1997-98 to post better growth. The division contributes more than 35 per cent to the company's sales. While the utility-vehicle division recorded a growth of 9.1 per cent during 1997-98, the tractor unit posted a sales jump of 25.47 per to Rs 1,463 crore.

For Telco, the slower growth and expectation of further pressure on margins was discounted by the market. In the case of Mahindra, however, till last year, the stock was riding high on account of an improved performance from the tractor division. Slowdown and the expectation of a lower growth in the current year in the tractor industry has badly affected the stock.

For the future, while lower raw-material prices and better cost control would help the company, higher borrowings, rising competition in the utility and tractor segments will put pressure on margins.