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Mahindra & Mahindra (MM)
Automobiles
High-end SUV at an affordable price. We visited the Chakan plant organized by
Mahindra and Mahindra to showcase the launch of XUV500 (touted as its global SUV).
We were impressed by the exterior styling, high-end features and affordable price of
the SUV. XUV500 boasts of higher mileage and power compared with models in its
price range while providing higher-end features which are available in the Captiva and
Fortuner models.
Initial focus will be domestic market followed by roll out in export markets
M&M plans to sell 2,000 units/month of XUV500 in domestic and export markets, which could be
achieved given its attractive price point, in our view. The company plans to target the Honda City,
Toyota Corolla customers by providing high end features available in a Captiva and Fortuner.
XUV500 boasts of 140 PS power and ARAI claimed mileage of 15.1km/ltr. The company has used
the Scorpio m-Hawk engine in this vehicle and improved the power of the engine without
compromising on fuel efficiency.
M&M plans to launch this vehicle in 10 cities and subsequently roll out the vehicle across India.
The company is targeting to make a mark in the exports market with this vehicle but admits it
won’t be easy considering tough competition by global brands. M&M will launch the vehicle in
S.Africa initially and then launch it in S.America, Australia, Russia, Latin America and Europe over
the next 6-9 months.
The company believes XUV500 will be more popular in the Top 10 cities initially in India while
Scorpio/Xylo sales in the Top 10 cities is only 35-40%. Scorpio and Xylo sales are growing at a
faster pace in semi urban areas and we believe cannibalization from Scorpio could be limited. If
the company sells 24,000 units/year, it will form ~5-6% of M&M’s standalone revenues in our
view. We believe initial profitability will be lower than the Scorpio due to high fixed costs but as
volumes improve, profitability will also improve, in our view.
We maintain our ADD rating on the stock
We maintain our ADD rating on the stock with a target price of Rs900. Our target price is based
on a sum-of-the-parts valuation methodology. We value the standalone business at Rs698/share
(at 14X FY2013E parent earnings less dividend from subsidiaries) and subsidiaries at Rs201/share.
XUV500: High-end SUV at an affordable price
We visited the Chakan plant organized by Mahindra and Mahindra to showcase the launch
of XUV500 (touted as its global SUV). We were impressed by the exterior styling, high-end
features and affordable price of the SUV. XUV500 boasts of providing higher mileage and
power compared with models in its price range while providing higher end features which
are available in a Captiva and Fortuner models. XUV500 is priced at Rs 600,000-700,000
cheaper than Captiva and Fortuner which is quite attractive for customers, in our view. We
believe interior quality and leg room in the car is less compared to a Captiva and Fortuner.
M&M has a capacity to produce 2,000/month of XUV500 at its Chakan plant based on a
single shift basis. Capacity can be increased easily if the demand exceeds their target by
adding second shift or even improving the tact time of the existing assembly line. Company
plans to provide a higher end option for its customers apart from Scorpio and believes there
will be minimal cannibalization with Scorpio. The company plans to launch this vehicle in 10
cities initially and subsequently roll out the vehicle across India.
The company is targeting making a mark in the exports market with this vehicle but admits
it won’t be easy considering tough competition by global brands. M&M will launch the
vehicle in South Africa, followed by South America, Australia, Russia, Latin America and
Europe over the next 6-9 months.
M&M as designed this vehicle at an incredible low cost with development cost of Rs 8.5 bn
(including Rs 2bn spent on engine and transmission). Scorpio was designed at a cost of Rs5
bn nine years back which is quite impressive, in our view. XUV500 has been made with a
localization of 90% which is the key reason for pricing the vehicle attractively.
The company believes XUV500 will be more popular in the Top 10 cities in India while
Scorpio/Xylo sales in the Top 10 cities is only 35-40%. Scorpio and Xylo sales are growing at
a faster pace in semi urban areas and we believe cannibalization could be limited. The
company could sell its target 2,000 units/month given its value proposition but it is unlikely
to be a big volume model for the company, in our view. If M&M sells 24,000 units/year, it
will form ~5-6% of its standalone revenues, in our view. We believe initial profitability will
be lower than Scorpio due to high fixed costs, but as volumes improve profitability will also
improve, in our view.
We maintain our ADD rating on the stock with a target price of Rs900, based on the sumof-
the-parts valuation methodology. We value the standalone business at Rs698/share (at
14X FY2013E parent earnings less dividend from subsidiaries) and subsidiaries at
Rs201/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra & Mahindra (MM)
Automobiles
High-end SUV at an affordable price. We visited the Chakan plant organized by
Mahindra and Mahindra to showcase the launch of XUV500 (touted as its global SUV).
We were impressed by the exterior styling, high-end features and affordable price of
the SUV. XUV500 boasts of higher mileage and power compared with models in its
price range while providing higher-end features which are available in the Captiva and
Fortuner models.
Initial focus will be domestic market followed by roll out in export markets
M&M plans to sell 2,000 units/month of XUV500 in domestic and export markets, which could be
achieved given its attractive price point, in our view. The company plans to target the Honda City,
Toyota Corolla customers by providing high end features available in a Captiva and Fortuner.
XUV500 boasts of 140 PS power and ARAI claimed mileage of 15.1km/ltr. The company has used
the Scorpio m-Hawk engine in this vehicle and improved the power of the engine without
compromising on fuel efficiency.
M&M plans to launch this vehicle in 10 cities and subsequently roll out the vehicle across India.
The company is targeting to make a mark in the exports market with this vehicle but admits it
won’t be easy considering tough competition by global brands. M&M will launch the vehicle in
S.Africa initially and then launch it in S.America, Australia, Russia, Latin America and Europe over
the next 6-9 months.
The company believes XUV500 will be more popular in the Top 10 cities initially in India while
Scorpio/Xylo sales in the Top 10 cities is only 35-40%. Scorpio and Xylo sales are growing at a
faster pace in semi urban areas and we believe cannibalization from Scorpio could be limited. If
the company sells 24,000 units/year, it will form ~5-6% of M&M’s standalone revenues in our
view. We believe initial profitability will be lower than the Scorpio due to high fixed costs but as
volumes improve, profitability will also improve, in our view.
We maintain our ADD rating on the stock
We maintain our ADD rating on the stock with a target price of Rs900. Our target price is based
on a sum-of-the-parts valuation methodology. We value the standalone business at Rs698/share
(at 14X FY2013E parent earnings less dividend from subsidiaries) and subsidiaries at Rs201/share.
XUV500: High-end SUV at an affordable price
We visited the Chakan plant organized by Mahindra and Mahindra to showcase the launch
of XUV500 (touted as its global SUV). We were impressed by the exterior styling, high-end
features and affordable price of the SUV. XUV500 boasts of providing higher mileage and
power compared with models in its price range while providing higher end features which
are available in a Captiva and Fortuner models. XUV500 is priced at Rs 600,000-700,000
cheaper than Captiva and Fortuner which is quite attractive for customers, in our view. We
believe interior quality and leg room in the car is less compared to a Captiva and Fortuner.
M&M has a capacity to produce 2,000/month of XUV500 at its Chakan plant based on a
single shift basis. Capacity can be increased easily if the demand exceeds their target by
adding second shift or even improving the tact time of the existing assembly line. Company
plans to provide a higher end option for its customers apart from Scorpio and believes there
will be minimal cannibalization with Scorpio. The company plans to launch this vehicle in 10
cities initially and subsequently roll out the vehicle across India.
The company is targeting making a mark in the exports market with this vehicle but admits
it won’t be easy considering tough competition by global brands. M&M will launch the
vehicle in South Africa, followed by South America, Australia, Russia, Latin America and
Europe over the next 6-9 months.
M&M as designed this vehicle at an incredible low cost with development cost of Rs 8.5 bn
(including Rs 2bn spent on engine and transmission). Scorpio was designed at a cost of Rs5
bn nine years back which is quite impressive, in our view. XUV500 has been made with a
localization of 90% which is the key reason for pricing the vehicle attractively.
The company believes XUV500 will be more popular in the Top 10 cities in India while
Scorpio/Xylo sales in the Top 10 cities is only 35-40%. Scorpio and Xylo sales are growing at
a faster pace in semi urban areas and we believe cannibalization could be limited. The
company could sell its target 2,000 units/month given its value proposition but it is unlikely
to be a big volume model for the company, in our view. If M&M sells 24,000 units/year, it
will form ~5-6% of its standalone revenues, in our view. We believe initial profitability will
be lower than Scorpio due to high fixed costs, but as volumes improve profitability will also
improve, in our view.
We maintain our ADD rating on the stock with a target price of Rs900, based on the sumof-
the-parts valuation methodology. We value the standalone business at Rs698/share (at
14X FY2013E parent earnings less dividend from subsidiaries) and subsidiaries at
Rs201/share.
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