ET Intelligence Group: The Street is likely to reward Mahindra and Mahindra (M&M) through a sustained re-rating of its stock after it saw rising sales contribution from the hinterland — an oasis for automakers during the Covid-19 pandemic.

M&M’s stock has gained 50 per cent in the previous three months and is trading at 16 times its one-year forward projected core auto business earnings, which is close to its long-term mean level.

Its earnings in the first quarter show higher volume contribution from rural areas, easing pressure on its total operating profit at a time when the automotive segment volume fell 78 per cent year on year (YoY) to 27,565 units. The rural mix in M&M’s total sales volume rose to 62 per cent in the June quarter, a gain of 12 per cent compared with the corresponding period last year. The higher pace of recovery in rural areas has supported the regaining of its historical monthly run-rate for tractors as well some passenger vehicle models that typically have higher traction there, such as the Bolero, Scorpio and some pick-ups.

Tractor volumes, which fell 83 per cent in April, have been consistently improving month on month. Between May and July, M&M’s tractor volumes grew 3-28 per cent YoY, although in the June quarter it fell 22 per cent to 65,657 units YoY.