Visit http://indiaer.blogspot.com/ for complete details What’s the theme?
M&M, with a major rural presence, is expected to benefit from strong monsoons this year. The automobile
segment is expected to record volume growth of 20.8% in FY11, after an impressive 30% growth in FY10.
The tractor segment is expected to grow 10.3% in FY11, due to increased demand from the construction
and infrastructure sectors.
1) Ssangyong, Korea, has selected M&M as a preferred bidder. The acquisition would provide M&M a
2-3 year leap in terms of product development. Financial details on the transaction are awaited. 2) Production
for the JV with Navistar has begun at the Chakan plant. 3) M&M has received EPA approval for launch in
the US. 3) There is strong demand for small commercial vehicles (SCVs), the fastest-growing CV segment,
which M&M recently entered into with the launch of Maximmo and Gio. 4) The company is expected to roll
out expansion plans to ramp up capacity given current growth in the tractor segment.
Where are we stacked versus consensus?
We expect EPS of Rs39.6 and Rs43.7 in FY11 and FY12 respectively. Our FY11 earnings estimate is
3.3% lower than consensus estimate of Rs40.9. We value M&M using SOTP at Rs831, discounting the
standalone business at 14x FY12E earnings.
What will challenge our target price?
1) Steep raw material price increases and M&M's inability to pass on the same to customers; 2) Increased
competition in the UV segment on new launches affecting market share; and 3) Litigation with Global
Vehicles Distributor, USA.
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