Buy M&M; target of Rs 851: SPA Research

SPA Research is bullish on Mahindra and Mahindra (M&M) and has recommended buy rating on the stock with a target of Rs 851 in its April 09, 2012 research report.

“Mahindra & Mahindra, flagship company of the Mahindra group, is the market leader in Utility Vehicles (UV's) & tractors in India, having ~56% & ~42% market share respectively. It is one of the most diversified conglomerates in the Indian automobile space with presence across segments viz. passenger vehicles, LCVs, Tractors, 3-wheelers, 2- wheelers & M&HCVs. Given the Company's thrust on new product developments, success of XUV5OO and attractive valuations, we initiate a "BUY" recommendation on the stock.”

“Post success of XUV5OO, M&M plans to further enhance its product portfolio with several launches lined up in the coming months. It plans to launch Maxximo- passenger van (for personal transport) in Q1FY13 & Compact SUV in Q3FY13. It also plans to launch variants of Reva (REVA-NXR) & Verito (sub 4m) in H2FY13. Apart from this, M&M plans to launch two models from the Ssangyong's stable viz. Korando C & Rexton (luxury SUVs) in the automotive segment over the next 15 months. We expect automotive division's volumes to register CAGR of ~13.7% over FY12E-FY14E. M&M has got strong traction in the pick-ups segment i.e. in the less than 3.5 tonnes category. It has strong presence with ~ 22% market share in the sub 2 tonnes category & ~68% market share in the 2-3.5 tonnes category. The passenger version of Maxximo has also gained market share to the tune of ~31% in the Maxi-cabs category. We expect M&M's pick-ups & MPV segment to be the future growth drivers & register volumes CAGR of ~19.0% over FY12E-FY14E.”

“M&M is expanding its tractor capacity by 100000 units at Zaheerabad to 333000 units scheduled to commence operations by July 2012, by incurring a capex of INR 3bn. Tractors being highly dependent on monsoons & rural income, its demand is very erratic in nature. With some structural hiccups viz. lower crop realization & slowing agricultural credit, we believe M&M volumes to grow by 8.0% in FY13E and bounce back to ~14.0% in FY14E, resulting in a CAGR of 14.9% in tractors revenues (~38% revenue contribution) over FY12E-FY14E.”

“M&M is the market leader in UV's & tractors in India. With the ramp up of capacity at Chakan, success of XUV5OO, several launches lined-up in the coming months, rebound in tractors sales and investments in subsidiaries viz. Reva, Defence & Ssangyong providing second leg of growth opportunities in the years to come, we expect M&M’s standalone revenues & profits to register a CAGR of 18.0% & 12.9% respectively over FY12E-FY14E. We have valued M&M using SOTP method, to arrive at a target price of INR 851 over a period of 18 months. We initiate a "BUY" recommendation on the stock,” says SPA Research report.

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