Bullish on Mahindra and Mahindra: Edelweiss

43006 Investors following Mah and Mah. Share this News with them.

0

Like this story, share it with millions of investors on M3

Bullish on Mahindra and Mahindra: Edelweiss

Broking house, Edelweiss Securities is bullish on Mahindra and Mahindra. It has reiterated buy rating on the stock.

Post your opinion here

 

0

Tweet

Share on Tumblr

RELATED NEWS Buy IVRCL, target of Rs 320: Brics PCG Accumulate Shoppers Stop, target of Rs 640: IDBI Capital Buy Adhunik Metaliks: Edelweiss Research Sell Dr Reddy’s Laboratories, says Edelweiss Buy Mahindra and Mahindra: P-sec Mah and Mah BSE | NSE 25/05/12 Are Mutual Funds betting on Mah and Mah?

Broking house, Edelweiss Securities is bullish on Mahindra and Mahindra . It has reiterated buy rating on the stock.

The Edelweiss Securities report on Mahindra and Mahindra:

"M&M announced the acquisition of Jeco Holding AG, one of Germany's top five forging companies with revenues of EUR 185 million in CY2005 and EUR 149 million in CY2004. M&M will acquire 67.9% of the company for an enterprise value of EUR 140 million. Jeco Holding has a forging capacity of 100,000 tpa spread over three locations in Germany and an employee strength of 800."

"Some of the key customers of Jeco are - Volvo, Scania, Renault, DaimlerChrysler, Audi, Caterpillar and ZF. This acquisition provides M&M with access to a large, diversified and marquee set of customers, technology and product capabilities, as well as near-shore presence for tapping the large European market."

"The acquisition will be funded out of the proceeds of the FCCB issue of USD 200 million in April 2006. The issue was priced at Rs 922, with zero coupon and 28% redemption premium (YTM of 5%) after five years."

"The acquisition is the largest yet by M&M, and fifth in past two years. The earlier acquisitions were for a total value of approximately Rs 2.1 billion (USD 60 million) and revenues of Rs 4.7 billion (USD 100 million). Thus the Jeco acquisition is bigger than all the previous acquisitions combined."

"Mahindra Systech (formerly Mahindra Systems and Technologies, MSAT), the division under which the auto component business is housed, has a target of achieving USD 1 billion revenues by 2010."

Aggressive growth strategy in a high potential business

"Mahindra Systech is a key part of the future growth plans of the M&M group. We like the group's aggressive acquisition-led strategy in an industry, which is likely to grow at more than 25% annual rate in the next 4-5 years. Our valuation of M&M's subsidiaries and strategic investment (Rs 302 per share) does not factor in the full extent of the value creation potential through this division."

"The acquisition strategy of Mahindra Systech has focused primarily on forgings and engineering and design space, both of which afford significant potential for leveraging India's low cost advantage for value creation. For instance, as a part of M&M's joint venture agreement with International Trucks and Engine Corporation, ITEC, US, for commercial vehicles, M&M would provide engineering and design services to ITEC globally."

"The contract is being executed through Mahindra Engineering Design and Development Company, MEDDC, a wholly owned subsidiary of M&M, which had revenues of USD 5 million in FY06 from the above mentioned contract, and is expected to register revenues of USD 10 million in FY07. In addition, Mahindra Systech would procure auto components worth USD 100 million per year from India on behalf of ITEC."

Valuation

"At Rs 668, M&M is currently trading at 12.7x FY07E and 10.5x FY08E consolidated earnings. Excluding the value of its subsidiaries and other investments, which we estimate at Rs 302 per share, the price is discounting the core EPS (excluding investment income) by 13.6xFY07E and 11.3xFY08E. We maintain M&M as our top pick in the sector and reiterate `Buy'."