Mahindra and Mahindra Ltd. (M&M) stands to gain the most from farm loan waivers, said brokerage house Credit Suisse, prompting it to maintain its ‘outperformance' rating on the stock.
At least five states have either already waived or have stated their intention to do so, in the recent past. The Madhya Pradesh government may also be forced to announce a waiver soon. This in turn could free up capital for farmers to buy agricultural equipment including tractors, said the brokerage house.
Credit Suisse said tractor sales went up by as much as 21 percent after the then Congress government announced a farm loan waiver in 2008. Nine years later, the loan waivers announced so far are concentrated in states where agri equipment sales have traditionally been high.
"Loan waiver in these states can lead to higher disposable income with farmers, which can get channelised towards investment in additional equipment," the report said.
The brokerage house expects 12 percent volume growth in tractor sales in financial year 2017-18, despite the stress in the farm sector which will take the country’s largest agri equipment manufacturer’s stock price higher, said Credit Suisse.
In its base case, the brokerage has increased its price target on the stock to Rs 1,530 per share from Rs 1,396 earlier.