FREE

MOSL: Morning India (23/Mar/17)-1. Mahindra & Mahindra (Best bet on rural recovery); 2. Petronet LNG; 3. Infrastructure (NHAI)

​MOrning India (23/Mar/17): 1. Mahindra & Mahindra (Best bet on rural recovery); 2. Petronet LNG; 3. Infrastructure (NHAI)

Today’s top research idea

• ​Mahindra & Mahindra: Best bet on rural recovery; Passenger UVs to witness stable competitive environment
  
• M&M is the best play on the rural market recovery among key auto OEMs, as rural market contributes ~56% to revenues, 77% to S/A PAT and ~75% to SOTP.
  
• After initial impact of demonetization, tractor volumes are back on track. We estimate ~12.5% CAGR in tractor volume growth over FY17-19E (implies ~4.2% CAGR over FY14-19E).
  
• M&M’s passenger UVs volumes should recover as a) competitive intensity is not expected to further intensify, b) rural recovery, c) launch of petrol variants in existing models and d) one new product launch each in FY18 and FY19. We estimate modest ~2% CAGR in passenger UV volumes for M&M.
  
• Similarly, Pick-up segment would see resumption in recovery (post-demonetization), and estimate ~14% CAGR in volumes for M&M.
  
• M&M is one of the cheapest large-cap auto stocks with valuations of 15.2x/12.8x on core P/E basis (adjusted for value in subs after 20% Hold-co discount). Maintain Buy with TP of ~INR1,546 (FY19 SOTP based).