Mahindra & Mahindra -On a strong growth trajectory : UBS

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Mahindra & Mahindra
On a strong growth trajectory
􀂄 Strong growth across key segments—benefiting from LCV growth
We expect Mahindra & Mahindra’s (M&M) volume growth momentum across key
segments to remain strong with: 1) two new launches in the utility vehicle (UV)
segment in FY12 (Scorpio successor) and FY13 (Global SUV product); and 2) the
light commercial vehicles (LCV) segment being driven by the Maxximo launch in
FY10. We expect volume in the UV segment to grow 15%/15% in FY11/12 and
LCV 37%/27%. We forecast robust volume growth for tractors of 15%/12% YoY
in FY11/12, driven by rising rural income, improving farm profitability and higher
rural labour costs.
􀂄 Rising share of auto and farm equipment business should drive re-rating
We estimate the proportion of revenue derived from the core auto and farm
equipment segment (FES) business will increase from 57% in FY08 to 71% in
FY11, and from 42% to 61% at the profit before depreciation, interest and taxes
(PBDIT) level over the same period. We expect M&M’s discount relative to its
peers to fall as the share of its other businesses decline at the consolidated level.
􀂄 US small pickup launch and Ssangyong—potential medium-term triggers
Assuming an eventual resolution of its legal dispute with Global Vehicles, we
believe a pickup truck launch in the US would offer M&M significant growth
opportunities, given the large market (around 1.4m in 2009). We also remain
positive on the Ssangyong acquisition due to its significant synergies with M&M’s
existing business and strategy.
􀂄 Valuation: maintain Buy rating and Rs850.00 price target
We derive our price target from a sum-of-the-parts methodology. We value the
standalone business at Rs634/share, based on an average 8x FY12-13E
EV/EBITDA, and its subsidiaries at Rs216/share.