BUY’ : MAHINDRA & MAHINDRA LIMITED:: Hedge Sec

Business Summary Mahindra & Mahindra Limited (MML) is India’s leading automobile and farm equipment manufacturer that enjoys leadership in the UV (Utility Vehicle) segment and the tractor segment (global leader). The company also derives value as a holding company.

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Investment Rationale
 MML is India’s leading UV manufacturer and through its collaboration with its Korea based sub- Ssanyong Motors, is very well positioned to cater to global standards and demand for SUVs. Going forward, the company is developing its expertise in alternate fuel vehicles and its stake in electrical vehicle major- Reva puts it in a very enviable position to fulfill the inevitable demand for alternate fuel vehicles. In the near term MML has 4 new launches due to be released in FY13.
 MML enjoys world leadership in the tractor market and follows a more holistic and comprehensive strategy in servicing its farm equipment target market. This consequently results in deep and more loyal relationships with its clientele.
 MML’s plants are strategically spread out over 5 states and in addition to logistical benefits this lack of concentration coupled with deep HR engagement practices reduces the risk of employee discordance and plant lockdowns.
 We have employed a weighted average valuation approach of determining our share target price of Rs.922. We have assigned 40% weights to our DCF and PE targets with a 20% weight for the EV target. Our buying level of Risks
 MML’s near term tractor sales are a concern. Sales have been trending lower in the current fiscal. This is an industry wide issue that has been precipitated by weak monsoons, stalling of PSU bank credit and lack of rural buoyancy.
 More than 95% of MML’s automobile portfolio are diesel oriented vehicles and potential diesel price hikes or tax hikes on diesel vehicles could adversely affect sales.
 MML has made significant investments to turn around its Korean sub-Ssanyong Motors. While the company has managed to positive figures at the operating level, it is yet to post profits. If it is unable to post profits in the next 1-2 years this could weigh heavily on MML’s ROI and free cash flow levels.