Mahindra & Mahindra (M&M) has has corrected 20% in the past couple of months due to fears of El Nino impacting tractor demand in FY24 along with receding waiting period of its UV portfolio. In the past 15 years, on four occasions of El Nino, tractor volume declined by an average of 12%.
Thus, we are building in 12% tractor volume decline for M&M in FY24 as against our earlier estimate of 6% growth. For SUVs, though waiting period of XUV700 has declined, overall monthly retails in general have largely remained unchanged in the past 4-6 months, as per our dealer interactions. We believe waiting period of XUV700 is down to 2-3 months in general as compared to 6-12 months in H1FY23 due to rise in cancellation rate. For other key models like Scorpio N and Thar rear wheel drive, waiting periods are in excess of a year. With XUV400 and Thar RWD yet to get delivered, against current monthly wholesale number of 30-32k units, we are building in 35k units/month of SUVs in FY24. The FES (farm equipment segment) of M&M has shown a consistent and stable financial performance in the past, with little variation even in the face of changes in sales volume. As a result, it is projecting a 17.5% Ebit margin for this segment in FY2024.
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Reservoir water levels are currently 5% lower than pre-summer levels of past 15 years and along with risk of disruption led by El Nino, we are factoring in tractor industry decline of 12% in FY24, against our earlier estimate of 6% growth. Historically, M&M has executed sticky Ebit margins levels in general, largely insulated from volume volatility of 10% and thus, we believe stability in raw material basket would be key for M&M FES segment Ebit margin to move back towards 18-19% levels.