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Volume momentum continues;
weaker tractor demand already
priced in
Action: Maintain Buy with a revised TP of INR902 for 31% upside
M&M + MVML’s results were largely in-line with estimates at the
operational level. The core business trades at an attractive valuation of
9.6x FY13F EPS (M&M + MVML). While the auto sector continues to do
well, our concerns pertain to a soft patch in tractor demand and food crop
prices. We think the structural drivers for mechanisation and rural growth
remain firmly in place and valuations should improve as demand picks up
by 2HFY13F.
Catalysts: Value for MVML with successful new products
MVML's PAT jumped from INR250m to INR440m q-q: As MVML
becomes significant, we believe the Street will start ascribing value to it.
Strong demand in the auto sector: Management highlighted that nearly
75% of its products in the auto sector have strong demand pull, with
demand outstripping supply. Ramp up of the XUV 500 and further new
launches carry upside risk for our estimates.
Price increases should support margins: M&M took a 1.5% price
increase in Jan 12, including a nearly 4% increase for the XUV500. This
could lead to some gross margin improvement if costs remain flat.
Valuation: SOTP-based valuation of INR902 with 31% upside.
We have reduced M&M + MVML EPS by 6.8% for FY13F to factor in
weaker tractor demand. We value the stand-alone business at INR631/sh
and MVML at INR67/sh based on 12x FY14F EPS. We value other
investments at INR204/sh (was INR180/sh), a 20% discount to market
value.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Volume momentum continues;
weaker tractor demand already
priced in
Action: Maintain Buy with a revised TP of INR902 for 31% upside
M&M + MVML’s results were largely in-line with estimates at the
operational level. The core business trades at an attractive valuation of
9.6x FY13F EPS (M&M + MVML). While the auto sector continues to do
well, our concerns pertain to a soft patch in tractor demand and food crop
prices. We think the structural drivers for mechanisation and rural growth
remain firmly in place and valuations should improve as demand picks up
by 2HFY13F.
Catalysts: Value for MVML with successful new products
MVML's PAT jumped from INR250m to INR440m q-q: As MVML
becomes significant, we believe the Street will start ascribing value to it.
Strong demand in the auto sector: Management highlighted that nearly
75% of its products in the auto sector have strong demand pull, with
demand outstripping supply. Ramp up of the XUV 500 and further new
launches carry upside risk for our estimates.
Price increases should support margins: M&M took a 1.5% price
increase in Jan 12, including a nearly 4% increase for the XUV500. This
could lead to some gross margin improvement if costs remain flat.
Valuation: SOTP-based valuation of INR902 with 31% upside.
We have reduced M&M + MVML EPS by 6.8% for FY13F to factor in
weaker tractor demand. We value the stand-alone business at INR631/sh
and MVML at INR67/sh based on 12x FY14F EPS. We value other
investments at INR204/sh (was INR180/sh), a 20% discount to market
value.
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