Buy M&M; target of Rs 824: ICICIdirect.com

ICICIdirect.com is bullish on Mahindra and Mahindra (M&M) and has recommended buy rating on the stock with a target of Rs 824 in its August 9, 2012 research report.

“Mahindra and Mahindra (M&M) reported a strong set of Q1FY13 numbers with topline (Rs 9367.4 crore) and bottom-line (Rs 725.6 crore) growth better than street estimates. This was due to better product mix (higher ASPs) in the automotive segment and marginal price hikes in tractor business with lower discounting. EBIDTA margins at 11.8% were better than estimates. The management has guided a flat growth rate for the tractor segment in FY13E. However, the outlook on the automotive segment has been positive with new product launches scheduled and newer export markets targeted. In view of higher topline growth potential and imminent margin improvement, we enhance our estimates and upgrade our rating to BUY.”
“M&M’s topline growth (40% YoY) has been engineered by higher UV and pickup truck sales in the automotive segment and steady tractor sales at ~59,600 units for Q1. With better pricing and lower employee and other expense ratios, the margins have improved sequentially by 150 bps. PAT at ~Rs 725 crores was also better than estimates. Going forward, topline and margins appear to have sufficient headroom for improvement. We believe the worst is behind for the FES segment, thereby ending the year-long period of underperformance. We expect volumes would be better aided by the low base of H2FY12. A better than expected monsoon might help the Rabi crop and generate additional demand post H1FY13E. The XUV-led utility vehicle portfolio coupled with new Verito launch would help the auto segment to post higher revenues and margins.”
“The automotive segment is likely to continue on a fast-pace growth with demand for diesel vehicles likely to sustain. Resilience of the tractor segment is evident with limited downside visibility. SsangYong Motors has turned EBIT positive in this quarter, with increased market share. Other subsidiaries are also expected to do well in the coming quarters. We, thus, upgrade our rating on the stock to BUY due to favourable valuations. We have valued M&M on an SOTP basis with the standalone business valued at a price of Rs 583/share and subsidiaries (listed/unlisted) valued at Rs 241/share arriving at a target price of Rs 824/share,” says ICICIdirect.com research report.    Shares held by Mutual Funds/UTI Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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