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XUV 500: M&M’s first truly urban UV
M&M’s newly launched UV ‘XUV 500’ highlights the evolution of the company
from an off-road jeep maker to a truly urban SUV manufacturer. M&M is trying
to create a new segment of affordable urban UVs by providing an attractive
set of features in ‘XUV 500’ at prices well below comparable products. While
volumes and margins on the product may be muted in the beginning, we
believe that this new segment could provide substantial opportunity for M&M
as we think there is a large latent demand of affordable urban UVs in India.
Given M&M’s strong YTD volumes, we are upgrading our FY12-13 estimates
by 6-8% factoring in higher tractor and LCV volumes. Maintain BUY.
‘XUV 500’ – M&M’s first truly urban UV
‘XUV 500’ is the first 'monocoque' vehicle developed by M&M - a big transition for
the company, which so far used to sell only 'body-on-frame' vehicles such as
Bolero and Scorpio. 'Monocoque' vehicles provide a smoother ride and are better
suited for urban driving conditions vs. 'body-on-frame' vehicles, which are better
suited for off-road driving. M&M’s focus on R&D over the past few years is clearly
bearing fruits now. The development cost of the new UV is Rs8.5bn (incl. Rs2bn
for engine and transmission) – commendably low for a new platform (specific
development cost of ‘Xylo’ was c.Rs5bn). The UV comes with a 2.2L diesel engine
in 2W/4W drive variants and offers nice interiors, a good set of safety features
(such as 6 air bags and ABS), and an advanced entertainment system.
Potentially large opportunity but limited near-term upside
M&M is trying to create a new segment of affordable urban UVs and has priced
‘XUV 500’ attractively at Rs1.1-1.3mn – well below comparable products. M&M
expects demand to come not only from potential UV buyers but also from
potential mid-size car buyers. The market size of urban UVs (incl. people carrier)
priced below Rs2.5mn is ~18K units/month (~2.5K/mth for urban UVs priced
Rs1.5-2.5mn), and that of mid-size/executive cars is ~20K/mth. While M&M has
not mentioned specific volume targets, it has started production with a capacity of
2K/mth. We believe that there is a large latent demand for affordable urban UVs
in India and this new segment could provide substantial opportunity. However,
creating a new segment could imply that volumes might be muted and margins
might be a bit lower on this product in the beginning. Also, the target customer is
brand conscious and we will have to see how an Indian brand is perceived vs. the
foreign brands. Hence, there may not be a big upside to earnings in near-term.
Upgrading FY12-13 estimates by 6-8% on strong YTD volumes
Given the strong YTD volumes for M&M, we are upgrading our FY12-13 estimates
by 6-8% factoring in higher volumes for tractor and LCVs. M&M remains our top
pick in the sector given better industry growth in tractors and LCVs, minimal
incremental competition and strong product line-up. Maintain BUY.
Other takeaways from management interaction
x Differentiating features: As per the management, the key differentiating
features of ‘XUV 500’ are – (1) good set of safety features such as six air bags
and ABS (Anti-lock Breaking System), and (2) an advanced
information/entertainment system with touch screen panel and voice
recognition.
x Pricing: ‘XUV 500’ is currently offered at introductory prices and the prices
may be increased later depending on the demand.
x Capacity: ‘XUV 500’ will be manufactured at the Chakan facility with initial
production capacity of 2,000 units per month on a single shift basis. The
capacity can be increased later, depending on the demand, as M&M has spare
capacity at the Chakan facility.
x Distribution: M&M will do a phased launch of ‘XUV 500’ in India, starting
with 5 cities and will then expand to 10-15 cities in a few months.
x Exports: M&M has also launched the UV in South Africa and plans to later
introduce it in Latin America, Western Europe and Russia. However, the
management was realistic that ramping up exports would not be an easy task
given that most geographies already have strong incumbents.
x Servicing: The company is planning to separate out service outlets for
‘Scorpio’ and ‘XUV 500’ – the two high priced products for M&M – to provide
better servicing to the customers.
x Mileage: The management mentioned that the UV will provide 15.1 km/l
mileage which will be one of the best in class. Typically, one needs to wait and
see mileage numbers in real world conditions to comment on relative fuel
efficiency across products.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
XUV 500: M&M’s first truly urban UV
M&M’s newly launched UV ‘XUV 500’ highlights the evolution of the company
from an off-road jeep maker to a truly urban SUV manufacturer. M&M is trying
to create a new segment of affordable urban UVs by providing an attractive
set of features in ‘XUV 500’ at prices well below comparable products. While
volumes and margins on the product may be muted in the beginning, we
believe that this new segment could provide substantial opportunity for M&M
as we think there is a large latent demand of affordable urban UVs in India.
Given M&M’s strong YTD volumes, we are upgrading our FY12-13 estimates
by 6-8% factoring in higher tractor and LCV volumes. Maintain BUY.
‘XUV 500’ – M&M’s first truly urban UV
‘XUV 500’ is the first 'monocoque' vehicle developed by M&M - a big transition for
the company, which so far used to sell only 'body-on-frame' vehicles such as
Bolero and Scorpio. 'Monocoque' vehicles provide a smoother ride and are better
suited for urban driving conditions vs. 'body-on-frame' vehicles, which are better
suited for off-road driving. M&M’s focus on R&D over the past few years is clearly
bearing fruits now. The development cost of the new UV is Rs8.5bn (incl. Rs2bn
for engine and transmission) – commendably low for a new platform (specific
development cost of ‘Xylo’ was c.Rs5bn). The UV comes with a 2.2L diesel engine
in 2W/4W drive variants and offers nice interiors, a good set of safety features
(such as 6 air bags and ABS), and an advanced entertainment system.
Potentially large opportunity but limited near-term upside
M&M is trying to create a new segment of affordable urban UVs and has priced
‘XUV 500’ attractively at Rs1.1-1.3mn – well below comparable products. M&M
expects demand to come not only from potential UV buyers but also from
potential mid-size car buyers. The market size of urban UVs (incl. people carrier)
priced below Rs2.5mn is ~18K units/month (~2.5K/mth for urban UVs priced
Rs1.5-2.5mn), and that of mid-size/executive cars is ~20K/mth. While M&M has
not mentioned specific volume targets, it has started production with a capacity of
2K/mth. We believe that there is a large latent demand for affordable urban UVs
in India and this new segment could provide substantial opportunity. However,
creating a new segment could imply that volumes might be muted and margins
might be a bit lower on this product in the beginning. Also, the target customer is
brand conscious and we will have to see how an Indian brand is perceived vs. the
foreign brands. Hence, there may not be a big upside to earnings in near-term.
Upgrading FY12-13 estimates by 6-8% on strong YTD volumes
Given the strong YTD volumes for M&M, we are upgrading our FY12-13 estimates
by 6-8% factoring in higher volumes for tractor and LCVs. M&M remains our top
pick in the sector given better industry growth in tractors and LCVs, minimal
incremental competition and strong product line-up. Maintain BUY.
Other takeaways from management interaction
x Differentiating features: As per the management, the key differentiating
features of ‘XUV 500’ are – (1) good set of safety features such as six air bags
and ABS (Anti-lock Breaking System), and (2) an advanced
information/entertainment system with touch screen panel and voice
recognition.
x Pricing: ‘XUV 500’ is currently offered at introductory prices and the prices
may be increased later depending on the demand.
x Capacity: ‘XUV 500’ will be manufactured at the Chakan facility with initial
production capacity of 2,000 units per month on a single shift basis. The
capacity can be increased later, depending on the demand, as M&M has spare
capacity at the Chakan facility.
x Distribution: M&M will do a phased launch of ‘XUV 500’ in India, starting
with 5 cities and will then expand to 10-15 cities in a few months.
x Exports: M&M has also launched the UV in South Africa and plans to later
introduce it in Latin America, Western Europe and Russia. However, the
management was realistic that ramping up exports would not be an easy task
given that most geographies already have strong incumbents.
x Servicing: The company is planning to separate out service outlets for
‘Scorpio’ and ‘XUV 500’ – the two high priced products for M&M – to provide
better servicing to the customers.
x Mileage: The management mentioned that the UV will provide 15.1 km/l
mileage which will be one of the best in class. Typically, one needs to wait and
see mileage numbers in real world conditions to comment on relative fuel
efficiency across products.
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