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Mahindra & Mahindra --------------------------------Assuming Coverage with OUTPERFORM
New report: Riding the rural wave
Assuming coverage with OUTPERFORM. Our target price of
Rs903 is based on SOTP valuation. We attribute a value of Rs698
at 8x FY13E EBITDA to core auto business, and Rs205 for
subsidiaries.
● Volume growth set to be the best in the industry. Both its UV
and tractor businesses face very little competition. Increased R&D
spend (up 4.5x in five years) has helped M&M accelerate new
launches. We reckon Mahindra will continue to surprise the street
and deliver >20% volume growth in autos.
● Tractors may continue to surprise. Adjusted for the horse
power per hectare, India’s tractor penetration is still lower than the
world average. Previous cycles suggest that we are mid-way
through the cycle, given structural factors like labour shortage,
government focus, volumes will likely grow at ~8-10% in FY13 too.
● Margin expansion will add to earnings growth. Mahindra’s gross
margins are at their lowest level currently, but given the company’s
two recent price hikes and a benign commodity price environment,
we reckon margins will expand.
We like the competitive advantage that Mahindra has via a
combination of a tractor and UV business in rural India. Given that
most of the company’s customers earn their livelihood through their
vehicles, its sales are less discretionary in nature.
Mahindra’s 1Q FY12 gross margins were the lowest ever in ten years.
For the first quarter, the company’s raw material-to-sales ratio stood at
71.8% compared with the historical average of ~68%. Now, with
commodity prices stabilising and the company continuing with its
gradual price hikes, gross margins will likely dip over the next 2–3
quarters. After a hike in the middle of 1Q FY12, M&M has taken price
hikes in both autos and tractors in 2Q FY12 as well
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra & Mahindra --------------------------------Assuming Coverage with OUTPERFORM
New report: Riding the rural wave
Assuming coverage with OUTPERFORM. Our target price of
Rs903 is based on SOTP valuation. We attribute a value of Rs698
at 8x FY13E EBITDA to core auto business, and Rs205 for
subsidiaries.
● Volume growth set to be the best in the industry. Both its UV
and tractor businesses face very little competition. Increased R&D
spend (up 4.5x in five years) has helped M&M accelerate new
launches. We reckon Mahindra will continue to surprise the street
and deliver >20% volume growth in autos.
● Tractors may continue to surprise. Adjusted for the horse
power per hectare, India’s tractor penetration is still lower than the
world average. Previous cycles suggest that we are mid-way
through the cycle, given structural factors like labour shortage,
government focus, volumes will likely grow at ~8-10% in FY13 too.
● Margin expansion will add to earnings growth. Mahindra’s gross
margins are at their lowest level currently, but given the company’s
two recent price hikes and a benign commodity price environment,
we reckon margins will expand.
We like the competitive advantage that Mahindra has via a
combination of a tractor and UV business in rural India. Given that
most of the company’s customers earn their livelihood through their
vehicles, its sales are less discretionary in nature.
Mahindra’s 1Q FY12 gross margins were the lowest ever in ten years.
For the first quarter, the company’s raw material-to-sales ratio stood at
71.8% compared with the historical average of ~68%. Now, with
commodity prices stabilising and the company continuing with its
gradual price hikes, gross margins will likely dip over the next 2–3
quarters. After a hike in the middle of 1Q FY12, M&M has taken price
hikes in both autos and tractors in 2Q FY12 as well
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