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M&M Faces De-Rating Over Ban on Big Diesel Cars in Delhi: Piyush Jain

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M&M Faces De-Rating Over Ban on Big Diesel Cars in Delhi: Piyush Jain

Automaker Mahindra & Mahindra, which gets around 4 per cent of its volume from Delhi, is likely to be downgraded because of the ban on registration of diesel cars with over 2000 cc engine in Delhi till March 31, 2016, says Morningstar India analyst Piyush Jain.

The "sentimental de-rating" of diesel-run cars could be a bigger problem for the company, Mr Jain said. Investors will start thinking that other major cities, which are also facing same pollution issues and infrastructural bottlenecks, may take similar steps like Delhi, he added.

"M&M's high margin and flagship vehicles' volume is coming under shadow, this means there will be higher risk in the near future," said Mr Jain.

M&M shares, which fell as much as 6 per cent, rebounded to trade with 1 per cent gains today.

Mr Jain also pointed that M&M's tractor sales are not doing well because of a slowing rural economy and unfavourable monsoon.

"We could possibly see a sort of de-rating, higher risk build-up in estimates, which means that in the near-term underperformance would be a much easier estimate on M&M at present," he said.

Indraprastha Gas (IGL), which sells CNG in Delhi, will benefit from the ban of large diesel cars in Delhi, Mr Jain said. The Delhi government is bringing in more CNG buses on the road, which will boost its volume, he added.

Higher gas consumption in Delhi will also help the ongoing renegotiation of gas-purchase agreement with Qatar, which will be positive for companies like IGL in terms of lower gas price, Mr Jain said.

He added that GAIL and Petronet LNG are also going to be benefited in the longer run. "Fundamentally we are moving across to a much higher gas consumption country, and this is going to percolate across the entire service providers for the sector," Mr Jain said.

As of 3.07 p.m., IGL shares were flat around Rs 500, M&M traded 2.14 per cent higher as compared to Sensex, which was up 1.1 per cent.



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