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MOSL: MAHINDRA & MAHINDRA - Gaps in UV product portfolio to be addressed in FY16




Motilal Oswal Securities Ltd.


19 Mar 2014





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MAHINDRA & MAHINDRA: Gaps in UV product portfolio to be addressed in FY16; Tractors expected to grow 8-10% in FY15 (MM IN, Mkt Cap USD10.2b, CMP INR1010, TP INR1145, 13% Upside, Buy) We meet with the senior management team of M&M lead by Dr Pawan Goenka, Executive Director and President (Auto & FES). Key takeaways: Expect UV industry growth to be higher than PV industry growth of 8-10% in FY15, with compact SUVs growing faster. M&Ms own two compact SUVs on track for 1HCY15 launch, along one SCV. Unseasonal rains in March pose risk to its tractor growth guidance of 8-10%, although El Nino might not be that big risk. It is focused on ramping-up and breaking even 2Ws and CV business, but would take corrective measures if these businesses eventually doesnt meet financial objectives. Benefits of synergies with Ssangyong yet to play out, with joint development of engines to commercialized in CY15 and joint platform development not before CY16. Compact SUVs key driver of UV industry, M&M preparing for 2 launches in 1HCY15 UV segment is expected to outgrow PV industry growth of 8-10% in FY15, driven by increasing acceptance of compact SUVs by car buyers. M&M plans to launch 3 new UV platforms in 1HCY15 to address gaps in its product portfolio, two of which would be compact SUVs (two different platforms, addressing both urban and rural consumer), while the third be a SCV product. Also, it plans to launch two major refreshes in FY15. Unseasonal rains in March pose threat to 8-10% FY15 Tractors growth It has guided for 8-10% growth in tractor volumes for FY15 based on normal monsoon. However, unseasonal rains in March 2014 pose threat. While increasing probability of El Nino might also be an important factor, but anecdotal evidence suggests that tractor volumes might not be impacted by just 1 year of below normal monsoon. Other takeaways Focus on 2W/CV business is to ramp-up volumes and improve gross margins for break-even. The management would be objectively evaluate performance and would be open to take corrective measures. Benefits of synergies with Ssangyong to start reflecting partly from CY15. Valuation and view We believe that FY15 performance would be impacted by adverse product lifecycle for UVs in period where competitive intensity is increasing. The stock trades at 12.1x/9.7x FY15E/FY16E consolidated EPS. Maintain Buy with a TP of INR1,145 (FY15 SOTP adj. for demerger of trucks business).

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