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UBS Investment Research
Mahindra & Mahindra
M ultiple growth drivers [EXTRACT]
Leading tractor and UV franchise
We believe Mahindra & Mahindra (M&M) is a strong play on the rural growth
story due to its: 1) leading tractor franchise; and 2) high utility vehicle (UV) sales,
which also have significant exposure to rural areas. We expect demand and pricing
power to remain robust in the tractor segment. We believe UV demand could
surprise on the upside with the forthcoming launch of the below 4m Xylo, which
should open up a new segment for the company. We expect tractor and UV
volumes to grow 15% and 10%, respectively, in FY12.
Ssangyong could be earnings-accretive from FY13
We remain positive on the Ssangyong acquisition as the company’s export
volumes continue to rise. Based on our pro-forma numbers, we expect Ssangyong
to be earnings-accretive for M&M from FY13. We expect Ssangyong’s EBITDA
margin to improve from 4.3% in Q410 to 9.4% in FY13, and contribute Rs8.4 to
our consolidated EPS estimate for that year (currently not included).
Lower standalone EBITDA margin and raise consolidated EPS estimates
We reduce our standalone EBITDA margin estimates from 13.8%/13.7% to
13.0%/12.9% in FY12/FY13, mainly on our higher raw material and staff cost
assumptions. However, we raise our consolidated earnings estimates, mainly to
reflect stronger-than-expected performance of subsidiaries and a sharp decline in
minority interests.
Valuation: maintain Buy; reduce price target from Rs880.00 to Rs840.00
We base our price target on a sum-of-the-parts valuation. We value the standalone
business at Rs588/share (down from Rs630/share) mainly on our lower earnings
for the standalone business), based on an average 8x 2013E EV/EBITDA, its
subsidiaries at Rs192/share, and the Ssangyong stake at Rs57/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Mahindra & Mahindra
M ultiple growth drivers [EXTRACT]
Leading tractor and UV franchise
We believe Mahindra & Mahindra (M&M) is a strong play on the rural growth
story due to its: 1) leading tractor franchise; and 2) high utility vehicle (UV) sales,
which also have significant exposure to rural areas. We expect demand and pricing
power to remain robust in the tractor segment. We believe UV demand could
surprise on the upside with the forthcoming launch of the below 4m Xylo, which
should open up a new segment for the company. We expect tractor and UV
volumes to grow 15% and 10%, respectively, in FY12.
Ssangyong could be earnings-accretive from FY13
We remain positive on the Ssangyong acquisition as the company’s export
volumes continue to rise. Based on our pro-forma numbers, we expect Ssangyong
to be earnings-accretive for M&M from FY13. We expect Ssangyong’s EBITDA
margin to improve from 4.3% in Q410 to 9.4% in FY13, and contribute Rs8.4 to
our consolidated EPS estimate for that year (currently not included).
Lower standalone EBITDA margin and raise consolidated EPS estimates
We reduce our standalone EBITDA margin estimates from 13.8%/13.7% to
13.0%/12.9% in FY12/FY13, mainly on our higher raw material and staff cost
assumptions. However, we raise our consolidated earnings estimates, mainly to
reflect stronger-than-expected performance of subsidiaries and a sharp decline in
minority interests.
Valuation: maintain Buy; reduce price target from Rs880.00 to Rs840.00
We base our price target on a sum-of-the-parts valuation. We value the standalone
business at Rs588/share (down from Rs630/share) mainly on our lower earnings
for the standalone business), based on an average 8x 2013E EV/EBITDA, its
subsidiaries at Rs192/share, and the Ssangyong stake at Rs57/share.
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