Accumulate M&M; target of Rs 849: Prabhudas Lilladher

Prabhudas Lilladher is bullish on Mahindra and Mahindra (M&M) and has recommended accumulate rating on the stock with a target of Rs 849 in its September 24, 2012 research report.

“M&M launched one of the smallest SUVs in the country, the ‘Quanto’, a sub-four metre car, competitively priced between 5.82lacs – 7.36lacs. Quanto is powered by a 1.5 litre diesel engine, churning out a peak power of 100 bhp and is likely to compete with the premium compact segment (i20, Swift) and entry level sedan space (Dzire). It is positioned as a new offering to customers who want to upgrade to diesel hatchbacks or entry-level diesel sedans. We expect ‘Quanto’ to clock an average volume of ~2.000/month. UV segment is likely to grow at a 20.5% CAGR on account of strong order book for XUV 500 (~14,000 units) and the newly launched ‘Quanto’ ( assumed volumes of Rs2,000/month). At the same time Pick-up +LCV segment is likely to grow at a 10% CAGR during FY12-FY14E period. As a result, we expect the automotive segment to grow at 15.0% CAGR during this period.”

“The revival of the monsoons in Aug-Sep 2012 and increase in crop prices have reduced the uncertainty regarding the growth in the tractor industry. According to Central Water Commission, which monitors 84 major reservoirs in the country, current year’s storage is 83% of last year and 102% of the normal storage. Volume growth is likely to recover driven mainly by good prospects for Rabi crop as reservoir levels are adequate for the upcoming season. We expect Tractor volumes to be flat in FY13E and to grow at 7-8% in FY14E. We are revising our volume estimates upwards by 3.3% for automotive segment and 1.5% for Tractors in FY14E. As a result our FY14E earnings are revised upwards by 4%. Thus, we expect earnings to grow at ~15% CAGR during FY12-FY14E period.”

“On sum-of-parts valuation, excluding Rs192/share assigned to its subsidiaries, the stock currently trades at 12.7x and 11.0x its standalone FY13E and FY14E EPS, respectively. We expect combined entity i.e. M&M + MVML profit to be higher by ~7% of the standalone profit in FY14E. We roll forward our target price to FY14E with the combined entity valued at 11.0x FY14E EPS of Rs60. As a result of 4% earnings upgrade and revised subsidiary value, our TP is revised to Rs849 (Rs790 earlier). We maintain accumulate on account of ~5.0% potential upside from the current levels,” says Prabhudas Lilladher research report.

Public holding more than 90% in Indian cos

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