Key Data

CMP Rs 612

Date April 10th 2008

Sector Automobiles

Face Value Rs.10

BSE Code 500520

52 Week H/L Rs 872/ 543

Market Cap Rs 15045 Cr

Investment Rationale

M&M is the flagship company of Mahindra Group that has a significant presence in several high growth sectors. The company has two main divisions – automotive and farm equipment. It is a dominant player in the UV segment with its ‘Scorpio’ and ‘Bolero’ models – main constituents of sales in the automotive division and currently accounts for about half of India’s market for utility vehicles. M&M is also engaged in the manufacture of three wheelers and light commercial vehicles (LCVs). It has recently tied up with Renault to make the Logan car in India. The company has also invested significantly in developing its auto-components business. Mahindra & Mahindra is the only Indian company among the top three tractor manufacturers in the world. M&M is also a leader in the Indian tractor market and with the recent acquisition of Punjab Tractors controls nearly 40% of the domestic tractor market. Mahindra’s Farm Equipment Sector has recently won the Japan Quality Medal, the only tractor company worldwide to be bestowed this honour. It also holds the distinction of being the only tractor company worldwide to win the Deming Prize. Mahindra is the market leader in multi-utility vehicles in India. It made a milestone entry into the passenger car segment with Logan. The Mahindra Group’s Farm Equipment Sector has a significant presence across six continents. It is among the top five tractor brands in the world, with its own state-of-the-art plants in India, USA, China and Australia, and a capacity to produce 1,50,000 tractors a year. The Group has a network of 800 dealers world-wide. It should benefit from the recent budget which cuts excise duty and focuses on rural income. Government’s increasing thrust on agriculture and easy availability of credit would benefit M&M’s tractor sales. Mahindra & Mahindra has hired Strawberryfrog, the New York based ad agency, to help them in entering the US and Brazil markets for cars and SUVs in 2009. It should benefit from the recent budget which cuts excise duty and focuses on rural income. A better product mix and higher operating efficiencies have helped improve the margins of the company. Mahindra & Mahindra (M&M) plans to launch a range of low cost utility vehicles by the end of 2009. These would be priced at Rs. 4 lakhs.

Mahindra and Mahindra have introduced a three-wheeler passenger automotive Alfa worth Rs.1.35 lakh. It is the first vehicle in its section whose design was based on widespread customer feedback and incorporates a host of special features. This diesel driven vehicle would give an average of 30 km per litre on standard conditions. Mahindra & Mahindra plans to set up its own plant near Chennai. M&M is in the process of drafting the plans for the Chennai plant and by 2010, the company expects to initiate operations. M&M want to look at Tamil Nadu for the next major expansion of our automotive business. M&M announced to set up its own greenfield plant at Chakan, near Pune, with an estimated investment of Rs. 1,500 crore, to produce 300,000 vehicles. M & M has also signed a MoU with the state government for the same and decided to make Maharashtra the launch pad for their commercial vehicles. Commercial productions at Chakan are expected to start by 2010.

M&M plans to launch a five-seater mass-market utility vehicle (UV) in 2009, priced between Rs. 4-5 lakh. M&M’s new innovation, mass market UV has been developed with an investment of Rs. 500-600 crore. The prototype of the model is ready and would be sent for homologation (for safety and emission clearances) by the end of 2008. Launch of Logan in collaboration with Renault and other planned launches such as new UV platform and other products in collaboration with International Trucks are set to further enrich its product mix. M&M’s Scorpio launched in Egypt, Brazil etc. M&M has set up a facility with an annual capacity of 5,000 units in Brazil to assemble the vehicles.

M&M standalone net revenue increased 14.1% YoY to Rs2940. The company has improved its market share in utility vehicle during the quarter to 52.8% as compared to 48.4% during the corresponding year-ago quarter. Exports also registered strong growth of 47.8% YoY to 2889 vehicle, largely due to increase in goods carrier sales.

At current market price of Rs612, M&M is quoting at a PER of 15.4x. On EV/Sales and on EV/ EBIDTA basis it is quoting at 1.4x and 9.3x of its TTM earnings respectively.

Click Here for In-depth Mahindra & Mahindra Ltd. research report by KR Choksey, company profile along with stock recommendations, Mahindra & Mahindra Ltd. target price and for making informed investment decisions.

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