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Stock Pick From The Automobile Sector

| 8/23/2012 9:00 PM Thursday

Choice Scrip is a Blue Chip stock pick that is expected to give returns within a 6 months-1 year horizon. The recommendation is based on a fundamental analysis of the company.

The company recommended as the Choice Scrip for this issue is from the automobile sector and has carved a niche for itself in the auto sector through its consistently good performance.

Mahindra & Mahindra: A Smooth Drive


HERE IS WHY

  • M&M has been maintaining high growth rates even in times of an economic slowdown.
  • The company’s presence in tractors and utility vehicles has been dominant and unshakeable for quite some time now.
  • M&M has been increasing its presence in Commercial Vehicles and two-wheelers, making it a less risky investment and providing strong scope for widespread growth.

The auto sector has been slowing down since the beginning of FY11. However, there have been some exceptions, the most striking among them being Mahindra & Mahindra (M&M). The company has carved a niche for itself in the auto sector through its consistently good performance.

BEST OF LAST ONE YEAR

Company Name

Reco.

CMP (Rs)

Gain %

Ajanta Pharma

171

406

137.43

FAG Bearings India

1261

1615

28.07

Asian Paints

2985

3693

23.72

Torrent Pharmaceutical

559

686

22.72

ING Vysya Bank

325

393

20.92

CESC

263

317

20.53

HDFC

621

733

18.04

Colgate Palmolive (I)

1014

1174

15.78

M&M’s business is divided into two divisions, the Farm Equipment Sector (FES) and Automotive. Business in the FES segment has been pressured for the past few months, but the company’s automotive segment has been outperforming to compensate for it. M&M is a market leader in tractors, with a market share of over 40 per cent. Factors like high interest rates, rising fuel prices, a delayed monsoon, labour shortage as well as weak industrial and agricultural output have led to a slower demand for tractors since November 2011. The YoY monthly domestic sales volume for tractors has reported a median growth of -4.71 per cent. Though the monsoon revived, the demand did not see much of a change. We expect it to pick up once the macroeconomic situation improves.



 

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