Mahindra & Mahindra -Diwali Mahurat Picks by India Capital Markets

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Mahindra & Mahindra Ltd is a domestic market leader in utility vehicles (63%) and
tractors (41%) segment. M&M manufactures utility vehicles (UVs), tractors,
commercial vehicles (CVs), three-wheelers and gensets. M&M through its joint
ventures with Navistar manufactures and markets medium and heavy CVs in India.
M&M has significant holdings in companies with varied interests like information
technology, real estate, hospitality, auto ancillaries and financial services. The
automobile business contributed 64% of consolidated revenues and 61% of profits in
FY10.





Strong volume growth across the segments: M&M’s volume growth is expected to be strong across key segments on
account of ; a) two new launches in UVs segment in FY12 (Scorpio successor) and Global SUV in FY13 and ; b) launch of
variants (Maximmo) in light commercial vehicles (LCV) segment. The launch of pickup trucks in US and the Ssangyong
acquisition (to be completed by FY11) should boost international volume growth. Volumes in the UV segment are expected
to grow 10 – 12% over next two years and LCV above 25%, while tractors segment is expected to improve by 12% in
FY11 – 12, driven by rising rural income and improving farm profitability.


Foray into international market : M&M’s aim to become an international player in tractors and SUVs is reflected in its
acquisition of Chinese tractor companies and Korean SUV manufacturer Ssangyong. We believe M&M has a sound balance
sheet and sufficient cash flow for its acquisitions despite high capex in the coming years.


Launch of pickups in US : M&M is planning to launch pickups in US which will augment its volume growth in US market.
M&M will launch two pickups which will be a modified version of M&M’s mHawk. We expect M&M’s strategy to tap
international market will contribute a significant volume growth.


Valuations : At the current price of ` 766, M&M is trading at 17x on FY11 & 14.7X on FY12 on consolidated earnings. On
EV/EBIDTA multiple stock trades at 10.8x & 9.4x on FY11 & FY12 EBIDTA. We expect stock performance driven by growth
in volumes across the segments. We recommend an “Accumulate” rating on the stock with a view to hold long term.