M & M- expects growth of 14-15% in the automobile and tractor: Motilal Oswal,

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M&M is the market leader in UV and tractors, with market share of 50% and 40% respectively.
Its tractor business is expected to benefit from the Government's thrust on the development
of the rural economy. In the UV segment, it is expected to maintain its market share in even
in the face of competition. It has also entered the LCV and three wheeler segment recently.


Key investment arguments:
M&M has successfully ventured into various businesses, unrelated to its core business,
thereby making it a diversified conglomerate as opposed to a mere auto space play. Value
unlocking in these subsidiary / associate companies is a strong trigger for the stock.
The management expects growth of 14-15% in the automobile and tractor industries, but it
expects UV volumes to grow below industry estimates due to rising competition (Tata Aria,
a facelift of the Innova) and an ageing of portfolio.

Recent Highlights:
M&M standalone 2QFY11 results were above estimates with EBITDA margins of 15.8%.
Higher other income boosted adjusted PAT to Rs7.27b. Net sales grew by 19% YoY to
Rs53.1b, driven by volume growth of 20.1% YoY. But an adverse product mix (increasing
share of three wheelers to 14.4% in 2QFY11 v/s 10.7% in 2QFY10 and the rising contribution
of low cost Yuvraaj tractor) and significant decline in engine revenue led to a decline in
realizations by 0.5% YoY (up ~0.8% QoQ), despite price increases in 1HFY11.
The management indicated that all the supply constraints, which resulted in a loss of
~5,000 units in 2QFY11, had eased, driving volumes in 2HFY11. But it expects some cost
push in 2HFY11 which would be off-set by a higher operating leverage.

Valuation and view:
We are positive on M&M's prospects, driven by the dominance in its core business of UVs
and tractors with favourable competitive dynamics, and strong volume growth momentum,
coupled with cheap valuations.
The stock trades at 12.7x FY11E consolidated EPS of Rs57.7 and 10.7x FY12E consolidated
EPS of Rs68.3.