MOSL: MAHINDRA & MAHINDRA (Buy)-Best bet on rural recovery-Passenger UVs to witness stable competitive environment
​Mahindra & Mahindra: Best bet on rural recovery; Passenger UVs to witness stable competitive environment
(MM IN, Mkt Cap USD11.5b, CMP INR1271, TP INR1546, 22% Upside, Buy)
Best bet on rural recovery: M&M is the best play among key auto OEMs on the rural market recovery, with highest revenue contribution from rural markets. For M&M, rural market contributes ~56% to revenues, 77% to S/A PAT and ~75% to SOTP. We expect rural markets to fully recover from impact of demonetization from 1QFY18 onwards.
Tractors back on track after demonetization impact: After initial impact of demonetization, M&M’s tractor volumes are back on track and have grown at ~22.5% in FY17YTD. Despite such strong recovery in volumes, M&M’s FY17 tractor volumes at ~259k will be lower than previous peak of FY14 (at ~267k). We estimate ~12.5% CAGR in tractor volume growth over FY17-19E (implies ~4.2% CAGR over FY14-19E).
Passenger UVs: Worst is behind us as rural recovery to enable market share recovery…: With impact of demonetization gradually fading and lull in competitive launches in UVs, we expect M&M’s UV business to be back on growth path driven by a) rural recovery, b) launch of petrol variants in existing models, c) 1 new product launch each in FY18 (MPV U321) and FY19 (Compact SUV S221 based on highly successfully Ssangyong’s Tivoli). We estimate modest ~2% CAGR in passenger UV volumes for M&M over FY17-19E.
Mahindra & Mahindra is a holding company. Through its subsidiaries, Co. is engaged in manufacturing, distributing and selling of tractors and multi utility vehicles, light commercial vehicles and three wheelers. In addition, Co. is also engaged in provision of information technology and telecommunications services and other services related to financing, leasing, hire purchase of automobiles and tractors. Co. has four significant segments: Automotive, Farm Equipment, IT Services and Financial services.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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