M&M: Oct' 10 - Sales growth (+32% yoy) surprises:: JPMorgan

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Mahindra & Mahindra Overweight
MAHM.BO, MM IN
Oct' 10 - Sales growth (+32% yoy) surprises





• M&M’s unit sales grew +32% yoy over the month, with sales being driven by
both – the Automotive and FES portfolio. Sales growth has been led by strong
demand in the festive season – also, sales have been aided by the late onset of
the festive season in the current year. Further, supplies have increased as
production constraints at the vendor’s end have eased considerably.



• Automotive segment sales grow +34% yoy: Passenger UV sales growth was
robust at +21% yoy, while the pick up portfolio was up +53% - driven by the
ramp up of the Maximmo. Low value three wheeler sales sustained the
momentum (+31% yoy).

• Tractor sales growth +29% yoy surprises: Tractor sales at 24,281 units grew
sharply – despite a high base – growth is being led by healthy monsoons, which
has increased farm productivity. Management remains upbeat on sales and
expects industry to grow at 14% over FY11E.

• Management conference call takeaways: Post results, management
highlighted the following: The company will launch a new UV platform in
1QFY12E - the product will be a MPV based on the monocoque frame and will
be positioned as a premium product; also new variants of the Xylo and
Maximmo will be launched over the next 12 months; on tractors – management
is contemplating setting up a new plant in South India – which will likely be
operational in two years. On Ssangyong the due diligence process is largely
complete – they will enter into a definitive agreement by November and the
acquisition will likely be completed by Mar’11.

• Over the month, the stock price (+7% yoy) outperformed the broader BSE
Sensex (flat yoy) given healthy 2Q results and strong monthly sales numbers.
We reiterate our OW stance on the stock, given that: a) the company has an
aggressive product roll-out schedule – particularly for the automotive segment
over the next 12 months. b) management is upbeat on the high-margin tractor
segment c) its subsidiaries – which account for c.25% of stock price are present
in the growth segments of the Indian economy.