Mahindra & Mahindra: UBS Investment Research

UBS Investment Research
Mahindra & Mahindra
O n a strong growth trajectory
􀂄 Event: Raising PT on strong vol. growth, improving margin outlook
We raise our volume growth forecast for FY12/13 driven by strong ytd. Growth
across all segments – Tractors, LCVs and UVs. We raise standalone volume
growth YoY for M&M to 23%/17% from 14%/12% for FY12/13, respectively. We
continue to remain positive on rural demand momentum. We are 9%/11% ahead of
consensus at standalone PAT level for FY12/13, respectively.
􀂄 Impact: Raising FY12/13 EPS by 9%/15%, incorporating Ssangyong
M&M has continued to take price increases across segments, we expect this to
drive margin improvement for the co. in the coming quarters given flat to declining
commodity prices. We raise our standalone EBITDA margin forecast from
13%/12.9% to 14.4% for FY12/13, respectively. We incorporate Ssangyong into
our forecasts; however, we expect Ssangyong profitability to remain under
pressure over the next couple of years.
􀂄 Action: Maintain Buy, Preferred play on rural demand
We believe M&M given its high exposure to rural segment will continue to benefit
from strong govt. focus on improving rural income level and rural infrastructure.
The stock remains one of our preferred plays in the Indian auto sector.
􀂄 Valuation: Trading at 11x FY13 PE, raise PT to Rs.970 (from Rs.840)
We derive our 12 mth-price target from a sum-of-the-parts methodology. We value
the standalone business at Rs 740/share, based on 8x FY13E, and its subsidiaries
(including Ssangyong) at Rs 213/share rounded off to Rs 970 per share.