M&M unveils Rs 18 bn expansion plan

Fri, 6 Aug 11:30 am

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After starting today's session on a positive note, Indian indices are struggling to gain further ground. Other key Asian markets are trading mixed with Nikkei in the red and Hang Seng in the green. Currently, heavyweights in the Sensex are trading mixed. Stocks from auto and realty space are finding investor favour at the moment. However, stocks from IT and banking space are marginally in the red.

The BSE-Sensex is trading up by around 30 points, while the NSE-Nifty is trading flat. However, buying interest is being witnessed amongst the mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.8% and 1% respectively. The rupee is trading at 46.05 to the US dollar

Auto stocks are mainly trading positive with Tata Motors and Bharat Forge trading in the green. Mahindra & Mahindra (M&M) is planning to set up a greenfield facility in Tamil Nadu for tractors, three, and four wheelers. This facility will cost approximately Rs 18 bn. The company is currently facing capacity saturation for its tractors segment. It is currently the market leader with a 41% share, and is looking to have additional capacity in place to meet future demand. M&M is in the final stages of negotiations for about 450 acres of land with the Tamil Nadu state government for the plant. The company does not have a tractor plant in South of India. It currently has plants in Nagpur, Chandigarh, Kandivali and Rudrapur. Since its existing plants are running at full capacity, it makes sense to have this plant in Chennai, which will help it make further inroads into the southern market. The company plans to expand this capacity in a phased manner. It will start with a capacity of 50,000 tractors per annum, going upto 100,000 units in the second phase.

Once the tractor plant is set up, the company will develop the rest of the space for setting up a passenger vehicle unit for four wheelers, and three wheelers. This will involve further investments, but at a later stage. Investment into setting up this new facility is part of the company's Rs 86 bn capital expenditure outlay, which it plans to spend over the next five years. The expansion plan by M&M is part of its long-term view of having capacities in place for future growth plans.

Metal stocks are trading flat with NALCO and SAIL leading the gains. Hindalco announced its 1QFY11 results. Top line increased 33% YoY driven by higher volumes, better product and geographic mix and improved realizations. The company also benefitted from higher aluminum LME and better by-product realisation in its copper business. Operations of aluminum Smelter at Hirakud were affected in July due to heavy rains and continual bad weather, including lightning. As a consequence, aluminum production in Hirakud is expected to be lower by around 20,000 MT for the current fiscal. EBITDA margins contracted to 16.1% during the quarter from 19.4% in 1QFY10 primarily due to increase in other expenditure as a percentage of sales. Bottom line registered a growth of 11% YoY during 1QFY11 on account of higher top line growth and decline in interest expenses.