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Mahindra & Mahindra (MM)
Automobiles
Management meeting update. We met Mr. Pawan Goenka to discuss developments
in the tractor industry. The management indicated that tractor demand is robust and
they have not seen any reason to change their annual volume guidance of 17-18% yoy
growth for the domestic tractor industry for FY2012E. Structural drivers for strong
demand for tractors (increase in mechanization, rising farmer incomes and shortage of
farm labor) are intact in their view.
No visible signs of slowdown in tractor volumes
M&M highlighted that they have not seen any signs of slowdown in tractor demand and they
retained their 17-18% yoy volume guidance for tractor industry for FY2012E. Strong rabi crop,
rising farm incomes and shortage of farm labor are likely to support a strong demand for the
industry. The management also allayed concerns on curtailing of lending to the tractor segment
due to higher NPAs of PSU banks and highlighted that private banks have started to lend
aggressively to the tractor segment.
The company also highlighted that replacement volumes form 40% of the domestic tractor
demand and 50% of the incremental tractor sold are being used in the haulage segment. West
and South states have grown at a significant pace while East and North Indian states have seen
modest improvement in tractor volumes. Gujarat (+74% yoy), Rajasthan (+43% yoy) and
Maharashtra (+30% yoy) are the Top 3 best performing markets in the Apr-Oct 2011 period.
We maintain our BUY rating on the stock
We maintain our BUY rating on the stock as we believe volume growth is likely to remain strong
despite challenging macro outlook. We have revised our target price marginally to Rs840 (from
Rs845 earlier) based on the sum-of-the-parts valuation methodology to factor in lower value of
subsidiaries. We value the standalone business at Rs646/share (at 14X FY2013E parent earnings
less dividend from subsidiaries) and subsidiaries at Rs193/share.
Management meeting update
We met Mr. Pawan Goenka to discuss developments in the tractor industry. Key issues
discussed during the meeting were as follows:
The management commented that concerns of slowdown in tractor volume growth are
overplayed, in their view. The company indicated that they have not seen any reason to
change their volume growth guidance of 17-18% yoy in FY2012E and 10-12% yoy in
FY2013E for the tractor industry.
Tractor lending remains robust and they have not seen any slowdown. NBFCs and private
banks’ share in lending in tractor segment is expected to go up which is likely to result in
better collections from tractors. For Mahindra, NBFCs/private banks form 50% of total
tractor lending, 20% of tractor volumes are purchased on cash while PSU banks form
only 30% of tractor volumes.
Most of the major tractor manufacturers are operating at >90% capacity utilization and
most of the players are planning to increase capacities by 50%. The company believes
manufacturers will increase capacities in phases and pricing discipline in the industry is
unlikely to get impacted despite decline in capacity utilization levels.
The management also allayed concerns of decline in farmer incomes due to lower
realization of crops and lower rental income of tractors. The company indicated there is
no empirical data to suggest that this is a pan-India trend and could be happening in
certain pockets of the country.
The company indicated 50% of incremental sales of tractors are being used for haulage
purposes but it is difficult to classify tractor use into two distinctive purposes—agricultural
and haulage.
40% of annual demand of tractors comes from replacement demand which is still
increasing at a steady rate, according to the company.
Product mix is shifting towards higher horsepower segment and the company believes
over the next 4-5 years, 41-50 HP segment will overtake the 31-40 HP segment.
West and South states have grown at a significant pace while East and North Indian
states have seen modest improvement in tractor volumes. Gujarat (+74% yoy), Rajasthan
(+43% yoy) and Maharashtra (+30% yoy) are the Top 3 best performing markets in the
Apr-Oct 2011 period.
We maintain our BUY rating on the stock
We maintain our BUY rating on the stock as we believe volume growth is likely to remain
strong despite challenging macro outlook. We have revised our target price marginally to
Rs840 (from Rs845 earlier) based on the sum-of-the-parts valuation methodology to factor
in lower value of subsidiaries. We value the standalone business at Rs646/share (at 14X
FY2013E parent earnings less dividend from subsidiaries) and subsidiaries at Rs193/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra & Mahindra (MM)
Automobiles
Management meeting update. We met Mr. Pawan Goenka to discuss developments
in the tractor industry. The management indicated that tractor demand is robust and
they have not seen any reason to change their annual volume guidance of 17-18% yoy
growth for the domestic tractor industry for FY2012E. Structural drivers for strong
demand for tractors (increase in mechanization, rising farmer incomes and shortage of
farm labor) are intact in their view.
No visible signs of slowdown in tractor volumes
M&M highlighted that they have not seen any signs of slowdown in tractor demand and they
retained their 17-18% yoy volume guidance for tractor industry for FY2012E. Strong rabi crop,
rising farm incomes and shortage of farm labor are likely to support a strong demand for the
industry. The management also allayed concerns on curtailing of lending to the tractor segment
due to higher NPAs of PSU banks and highlighted that private banks have started to lend
aggressively to the tractor segment.
The company also highlighted that replacement volumes form 40% of the domestic tractor
demand and 50% of the incremental tractor sold are being used in the haulage segment. West
and South states have grown at a significant pace while East and North Indian states have seen
modest improvement in tractor volumes. Gujarat (+74% yoy), Rajasthan (+43% yoy) and
Maharashtra (+30% yoy) are the Top 3 best performing markets in the Apr-Oct 2011 period.
We maintain our BUY rating on the stock
We maintain our BUY rating on the stock as we believe volume growth is likely to remain strong
despite challenging macro outlook. We have revised our target price marginally to Rs840 (from
Rs845 earlier) based on the sum-of-the-parts valuation methodology to factor in lower value of
subsidiaries. We value the standalone business at Rs646/share (at 14X FY2013E parent earnings
less dividend from subsidiaries) and subsidiaries at Rs193/share.
Management meeting update
We met Mr. Pawan Goenka to discuss developments in the tractor industry. Key issues
discussed during the meeting were as follows:
The management commented that concerns of slowdown in tractor volume growth are
overplayed, in their view. The company indicated that they have not seen any reason to
change their volume growth guidance of 17-18% yoy in FY2012E and 10-12% yoy in
FY2013E for the tractor industry.
Tractor lending remains robust and they have not seen any slowdown. NBFCs and private
banks’ share in lending in tractor segment is expected to go up which is likely to result in
better collections from tractors. For Mahindra, NBFCs/private banks form 50% of total
tractor lending, 20% of tractor volumes are purchased on cash while PSU banks form
only 30% of tractor volumes.
Most of the major tractor manufacturers are operating at >90% capacity utilization and
most of the players are planning to increase capacities by 50%. The company believes
manufacturers will increase capacities in phases and pricing discipline in the industry is
unlikely to get impacted despite decline in capacity utilization levels.
The management also allayed concerns of decline in farmer incomes due to lower
realization of crops and lower rental income of tractors. The company indicated there is
no empirical data to suggest that this is a pan-India trend and could be happening in
certain pockets of the country.
The company indicated 50% of incremental sales of tractors are being used for haulage
purposes but it is difficult to classify tractor use into two distinctive purposes—agricultural
and haulage.
40% of annual demand of tractors comes from replacement demand which is still
increasing at a steady rate, according to the company.
Product mix is shifting towards higher horsepower segment and the company believes
over the next 4-5 years, 41-50 HP segment will overtake the 31-40 HP segment.
West and South states have grown at a significant pace while East and North Indian
states have seen modest improvement in tractor volumes. Gujarat (+74% yoy), Rajasthan
(+43% yoy) and Maharashtra (+30% yoy) are the Top 3 best performing markets in the
Apr-Oct 2011 period.
We maintain our BUY rating on the stock
We maintain our BUY rating on the stock as we believe volume growth is likely to remain
strong despite challenging macro outlook. We have revised our target price marginally to
Rs840 (from Rs845 earlier) based on the sum-of-the-parts valuation methodology to factor
in lower value of subsidiaries. We value the standalone business at Rs646/share (at 14X
FY2013E parent earnings less dividend from subsidiaries) and subsidiaries at Rs193/share.
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