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Analyst meet update
In an analyst interaction session, Dr. Pawan Goenka (President, M&M)
sounded positive on demand outlook in FY12 despite rising interest rates.
Input cost pressures are likely to intensify but M&M believes that price hikes
can be taken to offset the same. The vendor capacity constraint issues have
been resolved and production has picked up. FY12-13 will be M&M’s biggest
new product launch year and management sounded optimistic on the same.
M&M remains our top pick in Autos and we see upside to our estimates. BUY.
Tractors: Improving demand outlook; ‘Yuvraj’ doing well
M&M expects the tractor industry to grow 11% in FY12 after the strong 22%
CAGR over FY09-11 due to rising rural incomes and worsening rural labour
shortage. Proportion of tractors sold without financing has risen to 25% from
10%. The low cost tractor ‘Yuvraj’ has seen a strong response in Gujarat and
Maharashtra and will be gradually launched across India over FY12-13. Two-thirds
of ‘Yuvraj’ sales come from farmers who are replacing bullocks, highlighting the
market expansion potential of the product. ‘Yuvraj’ will continue to be made in
third-party facilities to keep costs low. M&M has regained leadership in the 50+
HP segment from John Deere. Swaraj (erstwhile Punjab Tractors) has launched
two new products, which should boost sales in FY12. A new construction
equipment vertical has been created in the farm equipment division and M&M will
launch a back-hoe loader next month.
M&M expects 15-18% UV industry growth in FY12. Multiple new product launches
are lined up from the Chakan plant over FY12-13, first of which will be a new SUV
priced higher than the ‘Scorpio’. M&M believes that this product will be a test to
see if consumers can accept a premium offering from M&M in a fast-growing
segment. The ‘Maxximmo’ is doing very well and has grabbed 23% market share
in the low-tonnage LCV segment but the ‘Gio’ is struggling a bit. M&M commented
that market-leader Tata Motors has started discounting the ‘Ace’ post the
‘Maxximmo’ success. The truck launch under the Mahindra Navistar joint venture
has received positive feedback and more launches are planned over FY12-13. The
Ssangyong Motors (SM) acquisition is expected to close by FY11-end. The new
‘Korando-C’ SUV launched by SM has received a good response in exports markets
and will be launched in the Korean market soon. M&M expects a big improvement
in SM’s volumes and financial performance in FY12 on the back of this launch.
M&M is our top pick in India Autos; maintain BUY
M&M is in a sweet spot given strong demand outlook in tractors and UVs, multiple
exciting new launches and minimal incremental competition. Maintain BUY.
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