M&M Q1 results: Weak volume growth in auto, tractor segments; management guidance in focus

Mahindra and Mahindra (M&M) will report its financial results for the quarter ended June 30 on Wednesday. The stock price of M&M has been under pressure this year, trading about 30 percent lower in 2019 and close to its 52-week low.

The auto firm's Q1 results are expected to be weak. There is a double-whammy for M&M. On one hand, the auto the utility vehicle (UV) sales have been under a lot of pressure. UV volumes were down almost 6 percent year-on-year (YoY). On the other hand, because of the delayed monsoon, the tractor volumes have fallen 15 percent YoY.

The tractor margins have been down for three consecutive quarters and this quarter as well, there is an expectation that the weakness will continue. The blended margins are expected to fall 14.2 percent versus 15.8 percent earlier. On the profitability front, the Street is expecting a fall of 18 percent.

More importantly, the analysts will watch for whether the management scales down their guidance further.

Volume growth was weak both in auto and tractor segment

Overall volumes (RD) 9 percent YoY, (RD) 7 percent QoQ at 2.18 lakh units

Utility vehicle volumes (RD) 5.9 percent; Farm equipment (RD) 14.3 percent (YoY)

Farm equipment margins down for 3 consecutive quarters; More pressure expected

Margins expected to fall due to the lower share of tractors

Cost ramp-up due to recent model launches in UV space to impact margins

Important to see if management scales down guidance further. Management had guided for 5 percent growth in tractors in FY20

Expect a decline in tractor industry due to cyclicality post 3-year upcycle