Motilal Oswal neutral on M&M

Motilal Oswal 's report on M&M

“M&M plans to launch three new platforms (two compact UVs and an SCV in sub 1 ton segment), three major refreshes, and the three new variants in 1Q/2Q/3QFY16 are on track. As per management, its three key models (~75% of total PV volumes of MM) -- Bolero, Scorpio and XUV5OO -- would grow <5% in FY16, as consumer preference is changing towards compact SUVs. “

“Management expects the gap between diesel and petrol to narrow further, in turn driving further reversal of the dieselization trend. MM has developed a new petrol engine from scratch (unlike converting diesel to petrol engines earlier) with the help of AVL (Austria), which will be offered as an option for all its forthcoming UVs in the compact segment. It is benchmarking the petrol engines with best-in-class in terms of mileage and performance and takes advantage of lower excise duty for the 1.2ltr engines. “

“UV segment is expected to outgrow PV industry over next 3-5 years. However, growth in UVs is expected to be driven by increasing acceptance of compact SUVs by car buyers, while traditional UVs (M&M’s forte) could show cyclical recovery in volumes. M&M plans to launch 3 new platforms starting 1QFY16 to address gaps in its product portfolio, two of which would be compact SUVs (two different platforms, addressing both urban and rural consumer), while the third be a SCV product. Also, it plans to launch 3 major refreshes and 3 variants of existing models in FY16. We estimate MM’s UV volumes to grow at 20% CAGR over FY15-17E. MM is responding to changing industry dynamics, it is this time challenged by market leaders like Maruti and Hyundai in compact SUV segment, where MM is a weak player. We estimate profitability of MM’s UV business to be under pressure in medium term, as it will have shorten product refresh cycle and adopt very aggressive pricing.”

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