>MAHINDRA & MAHINDRA (JP MORGAN)

Jun' 10 - Sales growth (+7% yoy) moderates on base effect and production constraints - ALERT

• M&M’s unit sales grew +7% yoy over the month, with unit sales being driven by the three-wheeler and light truck portfolio. The UV and FES segment sales were impacted by production constraints.

• Automotive segment sales growth driven by compact portfolio: While M&M’s automotive sales were up +19% yoy, growth was driven by the three wheeler and light truck portfolio (+125% yoy). UV sales though were flat yoy (off a high base) given production constraints. The management highlighted that shortage fuel injection equipment as well as a plant shutdown (for maintenance) led to the lower sales.

• Tractor sales decline -9% yoy on component shortage: The management highlighted that tractor sales were impacted by shortage of castings and tyres at the vendor’s end. The company though continues to guide for FY11E tractor segment growth of 10-14%, given healthy demand.

• The M&M Renault Logan recorded domestic unit sales of 563 units over June (a growth of +12% yoy).

• M&M commences production of its heavy truck portfolio: Mahindra Navistar Automotives Ltd. commenced production of its 25 ton truck – MN25, from its new manufacturing plant at Chakan. The vehicle is priced at c.Rs.1.5m (ex-showroom Pune). The company will roll out its HCV product portfolio over the course of the year from this facility.

• M&M has commenced due diligence for the bankrupt Korean SUV maker – Ssangyong. The company is amongst one of the six companies that have been short listed for the same. The date for submitting bids has been set as July 20 by the bankruptcy court in Korea.

• Over the month, the stock price (+9% yoy) outperformed the broader BSE Sensex (+6% yoy). We re-iterate our OW stance on M&M – given that the company will benefit from a) expansion into newer product segments b) sustained growth in its traditional segments. Besides, the companies’ subsidiaries (c.30% of stock price) should benefit from a healthy economy, given their presence in high growth segments of the market.

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