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Research
Mahindra & Mahindra - Robust Tractor Sales to Boost Overall Volumes despite Slow Recovery in UVs - Karvy
Posted On : 2013-12-29 20:17:27( TIMEZONE : IST )
Mahindra & Mahindra (M&M) has been the undisputed leader in tractor segment, while it strengthened its position post acquisition of Punjab Tractor (PTL) in 2008. Its current market share in domestic tractor industry stands at 41.7%, while its PTL-based "Swaraj" brand holds ~16% market shares. Recently "Swaraj" brand gained shares in key regions of Central & North, while M&M brand lost some shares, while overall group shares remained unchanged at 41.7% in YTD'14. As M&M has higher market shares in South & Western regions, we believe that any revival in these two regions would result in M&M's outperformance in the tractor industry, going forward.
Better Monsoons to drive Rural Economy – Expect Robust Tractor Sales amid Slow Recovery in UVs: Better monsoons and favourable monsoon distribution would result in healthy crops in Rabi season, which would translate into strong rural economy, going forward. We expect recovery in UVs Q4FY14E onwards, albeit at lower pace. We expect volume of M&M – being largest UV player with wide rural network and strong rural brand image in Auto segment – to improve hereon. We expect positive trend in tractor segment to continue over next 1½ year and next phase of growth would come from South & Western regions. We maintain our 15% CAGR in tractor segment over FY13-FY15E. Though higher growth of tractor segment would compensate for overall auto volumes and profitability, margin erosion in auto segment would limit the growth in overall profitability.
Outlook & Valuation
We reiterate our "BUY" recommendation on M&M and maintain our SOTPbased target price of Rs. 1,040 per share. We value M&M's standalone business at Rs. 607 per share, while MVML is valued at Rs. 64 per share. Post-20% discount we value subsidiaries at Rs. 370 per share. Lower valuation of core business – due to cut in estimates – is compensated by higher subsidiary valuation due to better business performance of its key subsidiaries like MMFSL & Tech Mahindra etc.
