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UBS Investment Research
Mahindra & Mahindra
Meeting with President – Auto & FES
Sanguine on growth outlook
Dr Goenka expects the Auto industry growth to slowdown to 15%-18% in FY12.
While the current rate hike has been sharp, he believes the industry can absorb
another 50-100bps can be absorbed through gradual adjustment. M&M expects
tractor industry to grow 11% in FY12. Rural labour shortage and higher minimum
support prices for crops are the key reasons driving strong tractor growth.
Higher commodity costs a likely pressure point for margins
Mgmt. feels commodity costs could rise significantly in FY12 similar to FY11,
however room to absorb these cost increases through operating leverage is limited
and the industry may need to take more aggressive price increases. He felt the
consumer had the potential to absorb price increases, given strong income growth.
The co. is looking to closely control fixed costs.
New launches doing well, several new launches in FY12
Maxximo (sub 1 ton pickup) continues to ramp up well, has reached 4k units/mth
volume and segment mktshare of 20%-22%. Yuvraaj (low price, small tractor) has
reached 700 units/mth vols with rollout in only 2 states (Gujarat and Maharashtra).
Co. is excited about the new SUV launch in Q1FY12, which will be positioned at a
premium to its top most SUV, the Scorpio. The co. expects several new variants
and product refresh launches in FY12.
Valuation: Maintain Buy, PT Rs 910
We value the standalone business at Rs660/shr, based on an average 8x FY12-13E
EV/EBITDA; its subsidiaries at Rs190/shr; and Ssangyong stake at Rs 60/shr.
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