>MAHINDRA & MAHINDRA (UBS)

Asian Corporate e Governance Pick

■ How is governance?
In today's Q-Series®: Corporate Governance in Asia, we rate Mahindra & Mahindra (Mahindra) as Improving in India. The company provides a high degree of disclosure on related party transactions and maintains a clear separation between subsidiaries. Separately, senior management have made disclosures to the board that there are no material, financial and/or commercial transactions between them and the company, which could create potential conflict of interest. CRISIL has assigned Governance and Value Creation (GVC) Level-1 to Mahindra for its
ability to create value for all its stakeholders.

■ Is anything changing?
In our view, management has made recent efforts to improve its governance. For instance, it now provides quarterly disclosure of non-operating items and their overall impact on P&L. Mahindra’s ranking in the JD Power Customer Satisfaction Index (CSI) has improved to fourth from seventh, demonstrating its commitment to delivering value to customers. Mahindra has made efforts to relocate workers from its existing facilities to the upcoming Chakan plant. This highlights management’s ability to work for the benefit of both shareholders by reducing costs, and workers by providing an alternative employment opportunity.

■ Investment view
We think growth of Mahindra’s UVs and LCVs will remain strong, driven by successful new launches and higher exposure to rural and semi-urban areas. We expect UV and LCV sales to grow 20% and 15% YoY, respectively, in FY10.

■ Valuation: Buy rating and a price target of Rs860.00
We value M&M on a sum-of-the-parts basis. Based on our target multiple, we value the core business at Rs565/share and the subsidiaries at Rs294/share.

To see full report: MAHINDRA & MAHINDRA