Motilal Oswal: M&M: Sep-10 volumes below estimate at 52,658

M&M: Sep-10 volumes below estimate at 52,658 (est 55,400), up 17% YoY (~24% MoM); Buy

-          M&M’s volumes grew 17% YoY (24% MoM) to 52,658 units (v/s est 55,400), driven by strong growth in UVs and 3Ws.

-          UV volumes improved 19.6% YoY (24.6% MoM) to 27,103 units (v/s est 26,000), driven by newly launched small trucks, Gio and Maximmo. The management indicated that Maximmo truck has been launched in North region, where it has got incremental 25% market share. Also, it recently launched it in one of the southern markets and plans to complete pan-India launch during FY11, which would further drive volumes. Our FY11 estimates factor in 17.5% YoY growth in UV volumes, implying residual monthly run rate of 23,394 units (residual growth of 19%).

-          Tractor volumes grew by just 3% YoY (30% MoM decline) at 17,481 units (v/s est 19,000). Our FY11 estimates factor in 17.5% YoY volume growth for tractors, implying residual monthly run rate of 18,366 units (residual growth of 21%).

-          3-wheeler / small truck volumes grew 41% YoY (~18.3% MoM) to 6,005 units (v/s est 8,500). Our FY11 estimates factor in 47% volume growth for 3Ws/small truck, implying a residual monthly run rate of 7,806 units (~25% residual growth).

-          Supply-side constraints due to shortage of radial tyres, fuel injection equipments and castings will shave off 8% growth in FY11. Among peers, M&M is the worst hit as its entire portfolio is based on diesel powertrain and shortage of diesel fuel injection system is hurting it the most. The company is planning to import components to dilute these constraints. While it faced constraints in 2QFY11, supply is expected to improve from 3QFY11 onwards.

-          Scooter volumes were at 16,569 units. M&M entered the motorcycle segment with launch of two motorcycles, 110cc bike ‘Stallio’ (starting at Rs41,199 ex-showroom) and 300cc ‘Mojo’ (starting at Rs175,000). It has appointed Aamir Khan (a Bollywood celebrity) as its brand ambassador. Its 2W plant has capacity to make 0.5m motorcycles. Our estimates do not factor in any upside/downside from 2W business.

-          Our estimates factor in 22% volume growth in FY11 (implying residual monthly run rate of 51,438 units) and 60bp decline in EBITDA margins to 15.3%. On a consolidated basis, the stock trades at 12x FY11E of consolidated EPS of Rs57.8 and 10.2x FY12E of consolidated EPS of Rs67.9. Maintain Buy.