Emkay Global Financial Services report on M&M
Key Takeaways from our interaction with Dr Pawan Goenka, President, AS & FES at M&M:
■ Recent stress is rural demand is a confluence of poor monsoon, unseasonal rains which destroyed crops, limited increase in farm support prices (MSP) and lower farm yield.
■ Amidst testing times, M&M’s strength was evident in flattish gross margins YoY, controlled inventories and controlled expenses; FY15 margin compression was largely due to poor operating leverage and higher cost of customer acquisition.
■ Expect FES to grow 5-7% in FY16 on better monsoon and infra/mining revival but H1 could still see de-growth; Expect large SUV (UV2) segment to grow ~5% in FY16.
■ Will launch a new product, a refresh and a variant in each of the first three quarters of FY16; new products will include two compact SUVs and a one small commercial vehicle.
■ Given weakening rural demand, we reduce our volume growth est by 5%/4% and our EPS est by 8%/6% for FY16/FY17. Maintain ACCUMULATE on inexpensive valuations and growth catalysts from new launches in FY16, says Emkay’s Research Report.
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