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Emkay Global
Mahindra & Mahindra (Buy)
CMP: ₹512.15
Target: ₹630
Tractor volumes are witnessing positive growth in August 2019, driven by better customer sentiment on improvement in monsoon and Kharif sowing. This compares with a steep decline of 14 per cent over April-July 2019.
Our channel checks in the States of Uttar Pradesh, Madhya Pradesh, Haryana, Gujarat, and Bihar indicate an improvement in customer inquiries and volumes. Many of these States have witnessed a steep decline in volumes in earlier months.
Customer sentiment has been supported by improvement in monsoon and Kharif sowing. Monsoon stands at a surplus of 1 per cent as of August 14, 2019, while Kharif sowing has increased to 93 million hectares (marginally lower than the long-term average levels) as of August 16.
New tractor registrations on the Vahan platform, which collects data from Regional Transport Offices across the country, also indicate that demand conditions have notably improved in August 2019, compared with July 2019. Cumulative registrations in 12 States have witnessed 11 per cent y-o-y growth in August 2019 (up to August 15), versus a decline of 9 per cent y-o-y in July 2019.
We maintain Buy rating on the stock with an SOTP-based TP of ₹630, based on 14xcore FY21E EPS and the value of investments at ₹230/share.
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