A steady improvement in financial performance seems to be the prime factor responsible for an uptrend in the stock price. There has been gradual improvement in performance. For instance, for the period April-September, 1998, sales stood at Rs 1,613.73 crore. At the same time, operating profit was at Rs 178.93 crore, whereas OPM stood at 11.08 per cent. For the period October-March 1999, the sales figure improved to Rs 1,849.62 crore, and operating profit also jumped to Rs 257 crore, indicating an OPM of 13.89 per cent.

During the first half of the current year, the company posted a sales of Rs 1,703.4 crore. While this figure showed a growth of 5.5 per cent over its corresponding period's figure, there was a dip if one were to compare the sales with the immediate half. At the same time, OPM stood at 12.89 per cent which was higher compared to corresponding period's figure of 11.08 per cent but was lower compared to its immediate half's figure. The improvement which has taken place is mainly on account of the improving scenario in the untility vehicle (UV) sector. With a revival in the economy, demand for automobiles has shown a smart jump. The tractor division too has done well.

For the first seven months in the current year, tractor sales have grown by 13.5 per cent, an impressive jump if one were to consider the industry growth of 6.3 per cent. The tractor sales growth by M&M has been the highest in the industry. Last year, it was Punjab Tractors which showed the highest growth.

While the first half must have shown an impressive growth in comparison to the first half in the last year, growth has shown a decline in the second quarter. For the second quarter (July-September 1999), sales stood at Rs 830 crore, down compared to Rs 872 crore during the first quarter. However, higher realisations, and cost control has helped the company show a higher OPM during the second quarter. OPM during the second quarter stood at 12.99 per cent. At the same time, OPM during the first quarter stood at 11.96 per cent.

Fundamentally, the outlook for the sector where the company operates is positive. The demand for utility vehicles as well as tractors is likely to show good growth, and with several cost cutting measures in place, maintaining profit margins will not be a major problem for the company. From the stock market point of view, the stock gets a price discounting of around 18. While it appears reasonable for an automobile stock, strong fundamentals of its subsidiary, Mahindra British Telcom, and the fancy for software firms, a discounting of 18 is certainly low.

Technically speaking, the stock is in a positive trend. In te medium-term, the stock is likely to remain positive but a dip below Rs 310 would weaken its medium term outlook. On the upper side, it has a minor resistance at Rs 462, and a move above this would be a bullish signal. For short-term players, the level of Rs 342 should be used as a stop loss.

Deepak Singh Tanwar