Recommendation: Buy
CMP = Rs 794
Price target: Rs 900
Key points:
- A diversified play in the auto sector Mahindra & Mahindra (M&M) aims to become a speciality player and continue its domination in the utility vehicle (UV) segment. In the current year, the automotive segment has grown by 22% year till date. The growth was driven by UVs other than Scorpio (such as Bolero and Maxx Maxi Truck) and revenues from exports.
- Farm equipment contributing 35% to sales has under performed in the current year. Year-till-date (y-t-d) volumes were down by 5% as compared with 6% decline witnessed by the auto industry as a whole. The focus of integration of recently acquired Punjab Tractors Ltd (PTL) is recovery of outstanding dues.
- The new UV platform code named Ingenio is slated for launch in August 2008. A new Sports UV is planned to be launched from its Chennai facility. The joint venture (JV) with International Truck for manufacturing medium and heavy commercial vehicles (M&HCV) is expected to start by CY2009.
- The management continues to unlock value in its various subsidiaries and group companies. I estimate value of Rs 40 per share from its subsidiary Mahindra Holiday Resorts which is to be listed in 2008. Any higher value on listing would further add to its holding. All new product launches would commence from FY2009 onwards, triggering good growth.
- At the current market price of Rs 794, the stock quotes at 11.4x its FY2009E consolidated earnings. I maintain Buy call on this stock with a price target of Rs 900.
