Buy Mahindra & Mahindra; target of Rs 1625: Motilal Oswal

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Motilal Oswal's research report on Mahindra & Mahindra

Strong tractor segment growth of ~23% in FY17 was supported by the good performance of YUVO, which has helped the company gain market share in the 30-50 HP segment (covers 70-80% of industry). YUVO, an all-new tractor platform launched in April 2016, was highly successful in strengthening the technology leadership of Mahindra tractors in FY17. MM, in April 2017, also launched its third new tractor platform, JIVO, a new-age small tractor platform in the sub-25 HP category (covers only 5% of industry), which is an ideal choice for the growing segments of horticulture and row crop farming.

Outlook

We estimate ~17% consolidated EPS CAGR over FY17-20 (v/s ~9% compounded annual decline over FY14-17). Recovery in rural markets improves visibility of volume revival in both its core businesses. MM is one of the cheapest large-cap auto stocks, with valuation of 17.5x/15.6x FY19/20E consolidated EPS and 14.1/12.4x core EPS (adjusted for value in subsidiaries after 20% holding discount). Maintain Buy with an SOTP-based target price of ~INR1,625.
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