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Key Takeaways
Sufficient capacity for next three years
The management maintained its volume growth guidance at 10% for the automotive
industry and at 11-13% for the tractor industry. It believes it has sufficient capacity
for the next three years to support 10-11% volume CAGR.
For tractors, it is operating at 80-85% utilization on two shifts, which can be increased
to three shifts. It has increased capacity of Yuvraj to 20,000 units from 10,000
earlier. It is setting up a plant at Zaheerabad, with a total capacity of 120,000 units.
In the auto segment, its recently commissioned Chakan plant, with a capacity of
300,000 units and expandable to 500,000 units, would be the key growth driver.
Yuvraj, launched only in Gujarat, Maharashtra, Madhya Pradesh and Karnataka,
would be a volume driver for the tractor business. Being an outsourced product, it
would have lower margins, but would enjoy higher RoE and RoCE.
Ssangyong: Volumes of 0.12m, EBITDA positive in CY11
It maintained its guidance of ~50% volume growth to 120,000 units in CY11, driven
by recovery in its markets, and the recent launch of Korando-C and Rexton. It indicated
that lack of investment in new products had impacted Ssangyong's (SYMC)
performance earlier. It expects revenue growth of 50% to USD3b for SYMC in CY11.
SYMC has a capacity of 120,000 units (on single shift basis), which it expects to fully
utilize in CY11. Ramp-up of operations in CY12 would drive operating leverage.
Its 2QCY11 performance was impacted by employee bonus and branding spends on
Korando-C launch. It expects SYMC to be EBITDA positive in CY11, despite reporting
a loss in 1HCY11. However, it would not break even at PAT level in CY11.
It intends to invest USD240m in CY11 - USD200m on product development and
USD40m on branding. It will be funded through fresh borrowings by SYMC.
M&M has not made any significant changes in SYMC's management, with only CFO
and some representatives in key functions from M&M.
Other takeaways
M&M expects the issue of VAT-related change in Maharashtra to be resolved by
September 2011.
It maintained its capex guidance of INR50b and investment guidance of INR20b-25b
over the next three years.
Valuation and view
Short-term headwinds notwithstanding, we remain positive on M&M's prospects, driven
by its dominance in its core business of UVs and tractors, favorable competitive dynamics,
and strong volume growth momentum. The stock trades at 15.9x FY12E and 13.8x
FY13E consolidated EPS. Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Sufficient capacity for next three years
The management maintained its volume growth guidance at 10% for the automotive
industry and at 11-13% for the tractor industry. It believes it has sufficient capacity
for the next three years to support 10-11% volume CAGR.
For tractors, it is operating at 80-85% utilization on two shifts, which can be increased
to three shifts. It has increased capacity of Yuvraj to 20,000 units from 10,000
earlier. It is setting up a plant at Zaheerabad, with a total capacity of 120,000 units.
In the auto segment, its recently commissioned Chakan plant, with a capacity of
300,000 units and expandable to 500,000 units, would be the key growth driver.
Yuvraj, launched only in Gujarat, Maharashtra, Madhya Pradesh and Karnataka,
would be a volume driver for the tractor business. Being an outsourced product, it
would have lower margins, but would enjoy higher RoE and RoCE.
Ssangyong: Volumes of 0.12m, EBITDA positive in CY11
It maintained its guidance of ~50% volume growth to 120,000 units in CY11, driven
by recovery in its markets, and the recent launch of Korando-C and Rexton. It indicated
that lack of investment in new products had impacted Ssangyong's (SYMC)
performance earlier. It expects revenue growth of 50% to USD3b for SYMC in CY11.
SYMC has a capacity of 120,000 units (on single shift basis), which it expects to fully
utilize in CY11. Ramp-up of operations in CY12 would drive operating leverage.
Its 2QCY11 performance was impacted by employee bonus and branding spends on
Korando-C launch. It expects SYMC to be EBITDA positive in CY11, despite reporting
a loss in 1HCY11. However, it would not break even at PAT level in CY11.
It intends to invest USD240m in CY11 - USD200m on product development and
USD40m on branding. It will be funded through fresh borrowings by SYMC.
M&M has not made any significant changes in SYMC's management, with only CFO
and some representatives in key functions from M&M.
Other takeaways
M&M expects the issue of VAT-related change in Maharashtra to be resolved by
September 2011.
It maintained its capex guidance of INR50b and investment guidance of INR20b-25b
over the next three years.
Valuation and view
Short-term headwinds notwithstanding, we remain positive on M&M's prospects, driven
by its dominance in its core business of UVs and tractors, favorable competitive dynamics,
and strong volume growth momentum. The stock trades at 15.9x FY12E and 13.8x
FY13E consolidated EPS. Buy.
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