>MAHINDRA & MAHINDRA: Launched Gio and Maxximo vans

In FY12, top-line performance of M&M was encouraging, in our view, with 25% volume growth and 36% revenue growth. The company also gained market share of around 300bps in the domestic automotive segment driven by new launches. M&M’s new launch pipeline looks solid, and we expect the company to maintain strong volume performance. Investments in new businesses dragged down consolidated EPS by around INR15/sh (~30%) in FY12. Turnaround in some of these businesses could lead to strong earnings growth over the next two to three years, in our view. Core business (ex investments) is trading at 9x FY14 M&M + MVML earnings of INR 58/sh, which is lower than 1-yr forward historical average P/E of ~12x. Reiterate BUY.

Auto segment – Market share improvements led by UVs and MPVs

M&M’s sales volumes in the automotive segment increased by 27% yoy in FY12 led by strong growth in UVs, LCVs and entry into the new MPV segment. Market share in the UVs segment increased to 55.1% in FY12, driven largely by the success of XUV500 launched in Sep-11. M&M launched Gio and Maxximo vans in FY12 and was able to garner 10% of the overall MPV segment. Market share also improved in the Verito segment and 3-wheelers. M&M remains the market leader in 2-3.5 ton LCV segment with a market share of around 67%, as per the company.

Tractor segment – Steady market share

M&M’s volumes in the domestic tractor market increased by 10% yoy in FY12, nearly in-line with industry growth of 11%. M&M’s overall market share remained steady at around 42%, but the company lost some market share in the 31-50 HP segment. The major gainer in this category has been TAFE (Tractors and Farm Equipments Ltd). M&M gained share in the 51HP+ and <30HP segments. The company is planning to launch a new tractor platform in FY13, which we believe should help it gain some market share.

M&M invested around INR10bn in subsidiaries in FY12 – a large part of the investment was towards unlisted subsidiaries. Three key points to note here are:

 M&M invested around INR3.5bn in its two-wheeler venture – the company increased its stake to 88.5% in the business from 80% earlier.

 M&M invested around INR1.6bn in Mahindra Navistar, its commercial business. This is possibly largely towards funding M&M’s share of net loss in the subsidiary in FY12, we believe.

 The company has invested INR2.3bn in Mahindra Engineering & Chemical Products Ltd (MECPL), a wholly owned subsidiary. MECPL is engaged in the business of manufacturing of material handling equipment. Further, Mahindra Retail is an indirect subsidiary of MECPL which has cumulative loss of around INR2.4bn till FY12.

To read report in detail: MAHINDRA & MAHINDRA