Mahindra & Mahindra- Strong play on rural economy:: Macquarie Research

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Mahindra & Mahindra
Strong play on rural economy
Event
 Mahindra & Mahindra (M&M), flagship company of the Mahindra group, is
India's leading utility vehicle (55% market share) and tractor manufacturer
(40% market share). The company has recently made an entry into the twowheeler
segment and the medium and heavy commercial vehicle space,
which will see it emerge as a full-range player with a presence in almost every
segment of the automobile industry.
 Over the years, the company has also diversified into various sectors such as
IT, financial services, automotive components and real estate.

Impact
 Strong brands, new products to drive growth in auto space. Strong
products catering to all consumer segments and increasing urban demand
backed by bank financing and benign competition should help M&M’s utility
vehicle segment to grow at a CAGR of 14% over the next few years. In light
commercial vehicle (LCV) space, recently launched Gio and Maxximo have
received positive response and should help segment grow over 40% in FY11.
 Product pipeline to help improve volumes. M&M’s Maxximo has been
quick to garner a market share of around 17%. With further ramp-up of
production at the new Chakan plant and planned launches of new variants,
we expect volumes to remain robust in the coming quarters. By 1Q FY12 the
company plans to launch a premium SUV, which would be positioned above
Scorpio. The company also intends to launch new version of Xylo and less
than four-metre variant of Logan. We believe these new launches would boost
volume growth, going forward.
 New businesses to add value in the medium term. M&M has entered into
new auto segments – Medium and Heavy Commercial Vehicles (M&HCV) and
two-wheelers – and has enhanced its presence in the defence space. Given
strong growth prospects and a virtual duopoly in the M&HCV space, we
believe that the segment could add significant value in the medium term. The
company has also invested ~US$1bn in setting up a new plant, which should
support its auto business expansion for the next five to seven years.
Action and recommendation
 Reiterate Outperform: M&M continues to maintain its leadership position in
the tractor and utility vehicle space on the back of strong brands and a wide
product portfolio. We estimate a robust 16% CAGR in earnings over FY10–
FY13. The stock is currently trading at ~11.1x its core auto FY12E earnings.


Mahindra & Mahindra Aide Memoire
1. What is your revenue and volume growth guidance for the next couple of years?
2. With macro concerns emerging, do you see any volume growth slowdown in near to medium term?
3. What are your future capex and capacity expansion plans?
4. What is your pipeline of future launches?
5. Can you elaborate on plans and strategy for Ssangyong Motor?
6. When do you plan to launch Ssangyong products in India?
7. With will be the sustainable margin for Auto business, going forward?
8. What will be the impact of raw material cost pressure on your margins, going forward?
9. Are you planning any price hikes in the near term?