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Showing posts with label MAHINDRA MAHINDRA. Show all posts
Showing posts with label MAHINDRA MAHINDRA. Show all posts

Saturday, June 23, 2012

MAHINDRA & MAHINDRA LTD : On the path of Rise !!!

 Scrip Code: 500520 M&M
CMP:  Rs. 697.80; Buy at Rs.680-690 levels.
Medium to Long term Target – Rs. 763; 
STOP LOSS – Rs. 635.00; Market Cap: Rs. 42,843.16 Cr; 52 Week High/Low: Rs. 877.30 / Rs. 616.70
Total Shares: 61,39,74,839 shares; Promoters : 15,51,05,939 shares –25.26 %; Total Public holding : 45,88,68,900 shares – 74.74 %; Book Value: Rs. 167.46; Face Value: Rs. 5.00; EPS: Rs. 46.89; Div: 230 % ; P/E: 14.88 times; Ind. P/E: 15.81; EV/EBITDA: 11.26.
Total Debt: Rs. 2405.29 Cr; Enterprise Value: Rs. 47,699.09 Cr.

MAHINDRA & MAHINDRA LTD: The Company was formed in 1945 as Mahindra & Mahindra and renamed as Mahindra & Mahindra Ltd in 1948, and is based in India. Mahindra & Mahindra Limited operates in the Motor vehicles and car bodies sector. The Company operates in nine segments: Automotive segment comprising of sales of automobiles, spare parts and related services; Farm equipment segment comprising of sales of tractors, spare parts and related services; Information technology (IT) services comprising of services rendered for IT and telecom; Financial services comprising of services relating to financing, leasing and hire purchase of automobiles and tractors; Steel trading and processing comprising of trading and processing of steel; Infrastructure comprising of operating of commercial complexes, project management and development; Hospitality segment comprising of sale of timeshare and Systech segment comprising of automotive components and other related products and services, and its others segment comprise of logistics, after-market, two wheelers and investment. In November 2009, BAE Systems entered into a joint venture agreement with Mahindra & Mahindra Limited to create a land systems focused joint venture Defense Company, based in India. During the fiscal year ended March 31, 2011, the Company acquired a 70 % stake in Ssangyong Motor Company Limited - a manufacturer of sports utility vehicles in Korea. The company has a distribution network of over 130 dealers in Korea and exports to over 90 countries through 1,200 dealers. With the support of M&M, SMC is working on a revitalization plan with strong focus on cost reduction along with new product development and market expansion. Mahindra & Mahindra Ltd is compared with Maruti Suzuki India Ltd in India and globally with Beiqi Foton Motor Company Ltd and Guangzhou Automobile Group Company Limited.

Investment Rationale:
Mahindra & Mahindra announced a merger of MADPL (Mahindra Automobile Distributors Pvt Ltd) a 100 % subsidiary which manufactures Verito (erstwhile Mahindra-Renault Logan) recently with only the auto business is merged with the M&M while its Spare parts business continues to be a part of MADPL. Management expects passenger vehicle to grow by 10 % to 12 %,  it expects UVs to grow higher than the passenger vehicles. LCV’s is expected to grow by 10 % to 11 %, M&HCV at 5 % to 6 %, two wheelers at 12 % and expects flat growth in 3 wheelers segments. Due to state specific factors like continued rain deficit in Andhra Pradesh, Karnataka, Maharashtra leads to strong decline in demand but expectation of good monsoons in other parts of the country this season should help to recover volumes. Also, M&M’s exposure of tractors for non – farm purpose is considerably higher versus industry. Hence, weak demand in this segment, particularly in states like Haryana, Madhya Pradesh, Bihar and Uttar Pradesh impacted its volumes. Management estimates that industry volumes will increase by 5 % to 6 % in FY13. New tractor capacity plant is on track, which has initial capacity of 50,000 units (with scope for 100,000 units later). Also, M&M has resumed normal production post partial plant shutdown taken in Q4FY12. M&M is expected to introduce 6 to 7 models (new and refreshes) in the automotive segment (including sub 4 m Verito/compact SUV) and 1 new launch in the tractor segment (with 3 to 4 refreshes). Management says that its subsidiary Ssangyong was able to break even at EBIDTA level in Q4FY12. Management targets 1,60,000 volumes in 2013 and which will ramp up to 3,00,000 units by 2016. On Construction equipment segment, M&M has only 1 product – Backhoe loader and is currently maintaining a run rate of 100 units per month with an industry size of 25,000 units. M&M maintains its target of focusing on UVs only and has contract with Renault for technological support for Verito to ensure that there are adequate refreshes/variants. Outlook for tractor sales appears to be challenging given that the industry has witnessed just 3 % to 3.5 % growth in the past three months and management has guided for moderate growth of 5 % to 7 % in FY2013E. However, MM’s automotive volume growth continues to surprise positively, with 28.2 YoY growth witnessed in FY2012. 

Mahindra & Mahindra received strong response to its recently launched XUV500 which continued its momentum in the pick-up segment and the likely launch of the new Xylo should sustain automotive sales going ahead and somewhat offsets the weaker tractor demand. M & M’s new ventures in the CV space are firming up well. The new product launches such as GIO and Maxximo have received good response. Further, launch of new products in the M&HCV space has positioned the company in-line with other major domestic CV players such as Ashok Leyland and Tata Motors. This is expected to substantially augment the company’s overall volume growth, supported by its well-known brand equity and extensive sales network. Company has majority stakes in various listed companies in other sectors, including technology, property and finance, its Investments constitutes to 65 % of the balance sheet. The high growth potential of M & M's subsidiaries is expected to unlock the actual value of the stock over the years to come. Listing of its subsidiaries has been supporting the company’s valuation in the recent past and may continue to do so in the long term as well. So holding on to M & M for Value unlocking would be advisable for the long term players.

Outlook and Valuation:
M&M continued its subdued performance in Q4 FY12, underperforming SENSEX  by 10 % in H2 FY12, impacted by sluggish growth rate in tractor volumes and impending diesel price hikes and diesel engine tax rates. It is estimated that a strong demand outlook on automotive segment can be led by launch of XUV 5OO, new MPV, new Xylo. M&M has indicated that it will fully concentrate on UV segment and has no interest in cars beyond Verito. The company is also planning to launch a fresh version of Verito (Sub 4-meter). M& M targets sales volumes for FY13 by 4.1 % to 8,20,500 units, tractor sales for FY13 by 8.9 % to 2,46,000 units factoring weak rural demand, high interest rates and high base effect. FY13 EBITDA margin could be lower factoring in high raw material cost, higher promotional expenses for tractor segment and also due to merger of MADPL. Higher contribution from Chakan plant (Contribution from Chakan plant has gone up to 25 % from earlier 11 % - 12 %) would have a negative impact on standalone EBITDA margin. M&M will spend around Rs. 5,000 Cr on Capex over next three years. Moreover it plans to spend Rs. 2,500 Cr on investments. Recently, after raising the production capacity of its SUV (Sports Utility Vehicle) XUV 500 to 5,000 units per month by March, Mahindra & Mahindra Ltd will hit the brakes on the ramp up and will instead watch out for factors such as consumer-sentiments, market demand & macroeconomics environmentOn SOTP (sum-of-the-parts) basis, the valuation of M & M on standalone business comes at Rs. 605 per share and rest of its subsidiary investment at Rs. 158/share for FY13E. Recent correction in M&M stock has factored in lower outlook for tractor sales. Key upsides to the estimations are more on normal monsoon, higher tractor sales in H1 FY13, lower interest rates and no price hikes in diesel and diesel engine vehicles. In my view M&M could report EPS in FY13E & FY14E of Rs. 39.70 / sh and Rs. 43.00 / sh, respectively. I would buy M & M LTD for the medium to long term period with a price target of Rs. 763.00

Business Subsidiary FY13E
Value Per Share (in Rs.)
M&M Standalone
605.00
M&M Financial Services
46.00
Mahindra Forgings
3.00
Mahindra Holidays & Resorts Ltd
23.00
Mahindra Lifespace Developers
8.00
Mahindra Ugine Steel Co
1.00
Tech Mahindra
52.00
Ssangyong Motor Company
24.00
Other Investment (at BV)
1.00
TOTAL
763.00

KEY FINANCIALS
FY11
FY12
FY13E
FY14E
SALES (Rs. Crs)
23,311.90
31,853.60
36,024.40
40,442.30
NET PROFIT (Rs. Crs)
2,509.90
2,712.90
2,437.80
2,638.90
EPS (Rs.)
40.90
44.20
39.70
43.00
PE (x)
16.00
14.80
16.50
15.20
P/BV (x)
3.90
3.30
2.90
2.60
EV/EBITDA (x)
9.90
8.50
8.60
7.50
ROE (%)
27.70
24.10
18.70
17.80
ROCE (%)
26.60
24.10
19.50
19.20


I would buy Mahindra & Mahindra Ltd with a price target of Rs. 763 for Medium to Long term. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 635.00 on every purchases.

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

Saturday, September 3, 2011

MAHINDRA & MAHINDRA LTD : Showing Signs of strong growth !!


Scrip Code: 500520 M&M
CMP:  Rs. 765.10; Buy  Rs. 730
Short term Target: Rs. 780, 6 month Target – Rs. 814; 
STOP LOSS – Rs. 670.00; Market Cap: Rs. 46,975.21 Cr; 52 Week High/Low: Rs. 826.70 / Rs. 585.00
Total Shares: 61,39,74,839 shares; Promoters : 15,26,37,105 shares –24.86 %; Total Public holding : 98,93,422 shares – 62.30 %; Book Value: Rs. 167.64; Face Value: Rs. 5.00; EPS: Rs. 44.05; Div: 230 % ; P/E: 17.39 times; Ind. P/E: 15.40; EV/EBITDA: 11.91.
Total Debt: Rs. 2552.90 cr; Enterprise Value: Rs. 50,619.76 cr.

MAHINDRA & MAHINDRA LTD: The Company was formed in 1945 as Mahindra & Mahindra and renamed as Mahindra & Mahindra Ltd in 1948, based in India. Mahindra & Mahindra Limited operates in the Motor vehicles and car bodies sector. The Company operates in nine segments: automotive segment comprises of sales of automobiles, spare parts and related services; farm equipment segment comprises of sales of tractors, spare parts and related services; information technology (IT) services comprises of services rendered for IT and telecom; financial services comprise of services relating to financing, leasing and hire purchase of automobiles and tractors; steel trading and processing comprises of trading and processing of steel; infrastructure comprise of operating of commercial complexes, project management and development; hospitality segment comprises of sale of timeshare; Systech segment comprises of automotive components and other related products and services, and its others segment comprise of logistics, after-market, two wheelers and investment. In November 2009, BAE Systems entered into a joint venture agreement with Mahindra & Mahindra Limited to create a land systems focused joint venture Defense Company, based in India. During the fiscal year ended March 31, 2011, the Company acquired a 70 % stake in Ssangyong Motor Company Limited - a manufacturer of sports utility vehicles in Korea. The company has a distribution network of over 130 dealers in Korea and exports to over 90 countries through 1,200 dealers. With the support of M&M, SMC is working on a revitalization plan with strong focus on cost reduction along with new product development and market expansion.

Investment Rationale: M&M gained market share by launching new models which drove volume & revenue growth in automotive sector, company’s market share in Utility Vehicles (UVs) rose by 4.50 % to 56.2 % and in tractors by 2.30 % to 43 %. Its domestic tractor numbers grew 14 % in Q1 to 1,33,103 units. New product launches in the pickup segment has helped M&M maintain its demand momentum. In the UV segment, the company expects to launch a new SUV by December 2011 end. SsangYong Motor Company a part of US$ 12.5 billion Mahindra Group unveiled the concept of crossover vehicle, which is targeted for the global market. The car will make its debut at the 64th Frankfurt International Motor Show to be held in Germany this month. This SUV will be first launched in India & South Africa while several others countries around the world will be targeted later. M&M’s global SUV project codenamed W201 was christened as the XUV500. Consumer research for the Mahindra XUV500 was carried out in various western markets, South Africa & India, with testing of the product done across Europe, Australia & South Africa among others. The SUV will be manufactured at M&M’s plant in Chakan near Pune in Maharashtra. Mahindra is likely to price the SUV in Rs. 12 – Rs. 20 lakhs range. Demand for small commercial vehicles (SCV’s), the fastest growing commercial vehicles (CV) segment, remains strong and M&M has been successful in grabbing 20 % market share in the segment in less than 2 years of launch. M&M is working on turning around its recent acquisition of Ssangyong, Korea. In CY11, M&M targets revenue of US$3 billion from Ssangyong against US$ 2 billion in CY10. Two SUV’s from Ssangyong Motor’s portfolio (Rexton and Korando) would be assembled at M&M Chakan facility. Through its JV with Navistar, M&M continues to expand its sales network for commercial vehicles. M&M’s Tractors segment is expected to sustain its demand driven by higher rural penetration, good monsoons, onset of festival season & increasing usage in haulage applications. Current demand scenario is similar to what was witnessed in Punjab during the green revolution. The difference is it is visible in larger parts of the country & hence, a sharp jump in growth numbers. M&M’s low segment product (15HP) Yuvraj is gaining popularity among farmers. Company is selectively opening up in new markets with the latest addition being Maharashtra & Karnataka  

Outlook and Valuation:
Finance availability rather than interest rates, is the key parameter affecting demand. Not witnessing any constraints with finance availability M&M’s in-house financing arm - M&M Finance usually finances 35 % - 40 % of total vehicles sold. The company is prepared to handle any shift in demand for diesel/petrol vehicles with introduction of duty/price hike on diesel vehicles. MM expects share of Chakan in overall production to go up to 25 % in FY12. Currently, this plant produces Maximo, Genio and Navistar trucks. Management stated that all new products including W-201 and SMC products will come out from Chakan plant. Xylo and Scorpio are produced at Nashik plant, while Bolero is produced at both Nashik and Zaheerabad plants. The company is looking at new Auto plant in Chennai and new Tractor plant in Zaheerabad, as it operates at near full capacities at its existing units. Maharashtra government has withdrawn set-off of sales tax on sales outside the state from mid-March 2011. While it does not reduce the benefit, which is fixed as a % of total Capex, the benefit would now be realized over a much longer period. Impact of withdrawn of set-off of sales tax have contracted EBITDA margin by 0.6 % – 0.8 % in Q1 FY12. Management expects 25 % of auto sector volumes, as well as all new launches would be produced from Chakan plant. Due to higher volumes and revenues from Chakan plant, impact of withdrawn of set-off of sales tax would be higher in coming quarters. Capex could be some were about Rs 7,000 Cr over the next three years. M&M’s DEBT EQUITY RATIO AS ON JUNE 2011 stood at 0.22 X. In the automotive sector, M&M is expected to register a volume growth of around 17 % in FY12 and 13 % in FY13; in tractor sector at around 12 % in FY12 & 13 % in FY13 respectively. It is estimated that growth in M&M automotive sector would be lead by continued dominance of UV portfolio, launch of new SUVs and higher sales of Verito passenger car (earlier known Logan). Tractor sector to continue with its market share with expansion in capacity for Yuvraj tractor from 1,000 to 1,500 per month and normal monsoon this year. Any additional increase in excise duty on diesel vehicles would impact M&M as its UV portfolio is entirely diesel based (at around 97-98%). The valuation of M&M stock on SOTP (sum‐of‐the‐parts) basis, with the standalone business comes at Rs. 602 / share and subsidiary investments at Rs. 212 / share FY13E.  In my view M&M could report EPS in FY11 & FY12E of Rs. 43.70 / sh and Rs. 51.40 / sh, respectively. I would buy M & M LTD for the long term with a price target of Rs. 95o and for the SHORT TERM PLAYERS it would be Rs.814.00 

Business Subsidiary FY13E Value Per Share (in Rs.)
M&M Financial Services 65.00
Mahindra Forgings10.00
Mahindra Holidays & Resorts Ltd34.00
Mahindra Lifespace Developers 13.00
Mahindra Ugine Steel Co 1.00
Tech Mahindra65.00
Ssangyong Motor Company 24.00
Other Investment (at BV)1.00
Total Subsidiaries212.00
TOTAL814.00


KEY FINANCIALS FY10 FY11 FY12E FY13E
SALES (Rs. Crs) 18,529.60 23,295.00 29,349.10 34,210.80
NET PROFIT (Rs. Crs) 2,018.10 2,519.80 3,019.70 3,492.40
EPS (Rs.) 36.30 43.70 51.40 59.50
PE (x) 18.40 15.30 13.00 11.20
P/BV (x) 4.70 3.70 3.20 2.60
EV/EBITDA (x) 13.60 12.50 10.20 8.70
ROCE (%) 30.90 27.80 26.50 25.50
RONW (%) 24.3023.10 24.30 24.40

I would buy MAHINDRA & MAHINDRA LTD with a price target of Rs. 780 for the short term and Rs. 814 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 670.00 on your purchase.
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