The Hindu Business Line : Removal of excise on tractors boosts M&M

THE stock of Mahindra & Mahindra (M&M) today shifted gears to race to a 52-week high after the Budget proposed the abolition of the current 16 per cent excise on tractors.

According to analysts, though it will not have any impact on the bottomline of the company, it will have a direct positive influence on its topline.

Mr Ajay Jaiswal, a market analyst, estimated that the reduced prices of tractors (as the excise benefit would be passed on to the consumers) might double the sales figure during the current crop season if the monsoon is good.

Mr Pradeep Hotchandani of Anagram Stockbroking said that the impact of the Budget measure on the cost of a tractor would be around 14 per cent.

Echoing the same hope of higher sales, he pointed out that in 2003-04, M&M sold 49,576 tractors, accounting for 26 per cent of its total sales.

"Budget target to double agriculture credit in three years will ensure farm mechanisation in the coming quarters. The deduction of 150 per cent on R&D investment would also be an additional positive for the auto company stocks as almost all the players in the segment have provided for increased investments on product development and in-house research expenditure," he added.

"These two factors have given a clear indication for improvement in the topline and bottomline of M&M in the quarters down the line."

Non-imposition of service tax on the transport sector, which was widely feared before the Budget, has also caused revaluation of the stock, analysts said.

The enhanced rural credit facility and other booster doses prescribed by the Finance Minister have already lifted sentiment for farm-based stocks.

However, the substantial price cuts and easier and targeted loan availability from the banks and institutions in the field are expected to increase demand for tractors.

On the BSE and the NSE, the trading volumes shot up to more than four times compared to yesterday. The stock gained around 5.6 per cent to close at Rs 501.15 on the BSE; since June 28, it has gone up by about 15 per cent.

As the expectation of an agriculture-boosting Budget has been building up in the last few days, the price of M&M has factored in such possibilities to an extent. In the past seven trading sessions (on the closing price basis), the stock moved up by over Rs 41 or around 10 per cent.

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