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Pricing Strategy Adopted by Mahindra and Mahindra

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Pricing Strategy Adopted by Mahindra and Mahindra Powered By Docstoc
					Initiating Coverage
                                                                                                                                                                        March 19, 2010
Rating Matrix
Rating                                       :     Buy
                                                                                                                  Mahindra and Mahindra (MAHMAH)
Target                                       :     Rs 1,217
                                                                                                                                                                                 Rs 1,090
Target Period                                :     12 months
Potential Upside                             :     11.6%                                           Vrooming ahead…
YoY Growth (%)                                                                                     Mahindra & Mahindra (M&M), India’s largest producer of utility vehicles
                                  FY09           FY10E         FY11E          FY12E                (UVs) and tractors, has strong brand visibility, wide sales and services
Total Revenue                      13.5            41.2          16.6           13.3               network, and an aggressive pricing strategy. Across segments, the
EBITDA                            -20.0           154.8          11.4           11.1               company has enjoyed stellar growth in YTD FY10 fuelled by the low
Net Profit                        -21.4           125.3           5.4           12.4               interest rates and excise duties, cash infusion from the sixth pay
                                                                                                   commission and low sales base in FY09. We believe the company will
Current & Target Multiple (x)                                                                      continue to benefit from the strong market potential of UVs and low
                                  FY09           FY10E         FY11E          FY12E                tractor penetration in India, contributing to revenues growing at a 15%
PE                                 36.4            16.1          15.8           14.1               CAGR in FY10E-12E to Rs 24,429 crore. However, current stock price
EV/ EBITDA                         30.1            11.6          10.2            9.2               appears fair, offering limited upside.
P/BV                                5.8             4.4           3.4            2.9
Target P/E                         40.6            18.0          17.7           15.7               Topline to grow strongly in FY10E-12E
Target Ev/ EBITDA                  33.2            13.1          11.3           10.2               We believe the positive economic outlook by the Finance Minister in the
Target P/BV                         6.5             4.9           3.8            3.3
                                                                                                   2010 Budget (GDP to grow at 8.0% per annum in FY11E-12E) and higher
                                                                                                   disposable income will drive vehicle sales in India. Consequently, we
Stock Data                                                                                         estimate M&M’s revenues to grow at a 15% CAGR in FY10E-12E to Rs
                                                                                                   24,429 crore as a result of the sustained demand for UVs in India, launch
Stock Data                                                                                         of new products in the carrier segment (Gio and Maximo) and pickup of
Bloomberg Code                                                                MM.IN                export sales. Tractor sales will continue to grow in FY11E-12E (though at
Reuters Code                                                              MAHM.BO                  a lower rate than FY10) due to the growth of non-agriculture income and
Face Value (Rs)                                                                         10         continuance of pro-farmer policies by the government. Key risks to our
Promoters Holding                                                              27.2                forecasts include an adverse impact of the recent excise duty hike on
Market Cap (Rs cr)                                                           31,359                vehicle demand and higher interest rates on loans.
52 week H/L                                                               1,199/346
Comparable return matrix (%)
                                                                                                   Challenge to sustain margins

                                  FY09           FY10E         FY11E          FY12E
                                                                                                   After the substantial expansion of EBITDA margins in Apr-Dec 2009 (16%
M&M                                10.1             8.6          33.8          309.2               vs 8.6% in FY09), M&M will find it tough to sustain margins given the
Tata Motors                        12.5            10.1          41.6          463.3               rising steel prices and the challenges associated with raising product
Maruti Suzuki                       7.6            -5.8           -2.9         148.6               prices (loss of market share). Consequently, we estimate EBITDA margins
Ashok Leyland                       7.3             2.9           31.7         255.6
                                                                                                   to decline to 14.4% in FY11E and 14.2% in FY12E.
                                                                                                   Valuations
Price movement (Stock vs. Nifty)                                                                   At the current market price of Rs 1,123, the stock is trading at
             1 ,400                                                       6,000
                                                                                                   EV/EBITDA of 10.2x in FY11E and 9.2x in FY12E. We have adopted an
                                                                                                   SOTP based methodology to value the core business (Rs 802/share at
             1 ,050                                                       4,500                    FY11E EV/EBITDA of 8x) and listed subsidiaries (Rs 415/share). At the
                                                                                  (in U n it s )




                                                                                                   current stock price, we believe limited upside potential exists despite
 (in R s )




               700                                                        3,000
                                                                                                   the improved revenue streams as result of the new product launches
               350                                                        1,500                    and sustained demand for existing products, we initiate the coverage on
                 0                                                        0
                                                                                                   the stock with an Buy rating.
                 Fe b-09    Jun-09           O c t-09        F e b-10                              Exhibit 1: Key Financials
                                                                                                   (Rs Crore)                             FY08      FY09     FY10E     FY11E       FY12E
                           Pr ic e (L HS )              Nif ty (R H S )
                                                                                                   Total Revenues                        11,541    13,094    18,488    21,561      24,429
                                                                                                   EBITDA                                 1,367     1,093     2,784     3,100       3,445
Analyst’s name                                                                                     Net Profit                             1,103       868     1,954     2,060       2,315
                                                                                                   PE (x)                                  24.0      36.4      16.1      15.8        14.1
 Supriya Madye (Khedkar)
                                                                                                   Target PE (x)                           26.8      40.6      18.0      17.7        15.7
 Supriya.Khedkar@icicisecurities.com
                                                                                                   EV/EBITDA (x)                           23.5      30.1      11.6      10.2         9.2
                                                                                                   P/BV (x)                                  6.1       5.8       4.4       3.4         2.9
                                                                                                   RoNW (x)                                27.9      17.4      31.3      24.5        22.3
                                                                                                   RoCE (%)                                18.7        9.9     24.8      25.2        25.2
                                                                                                   Source: Company, ICICIdirect.com Research




     ICICIdirect.com | Equity Research
     Mahindra & Mahindra(MAHMAH)



Shareholding Pattern (Q3FY10, %)
Shareholder                                         (%) holdings          Company Background
Promoters                                                   27.2          The Mahindra & Mahindra Group was established in 1945 to assemble
Institutional Investors                                     50.1
                                                                          Willys Jeeps in India. It is today a conglomerate with interest in diverse
Other Investors                                               7.6
                                                                          segments as automotives, farm equipment, IT, financial services, tourism,
General Public                                                8.8
                                                                          infrastructure development, and trade and logistics.

Promoter’s & Institutional Holding trend (%)                              Mahindra and Mahindra Limited (M&M), producing automobiles and
                                                                          tractors, remains the group’s flagship company, with a 49% share of
                                                                          group revenues in FY09. In the automobile space, M&M manufactures and
   60.0          49.6        49.2           50.0            50.1
                                                                          sells utility vehicles (UVs), light commercial vehicles (LCVs), sedans and
   45.0      29.2         29.0                                            three wheelers in India and export markets. It is the largest player in the
                                        27.4         27.2
   30.0                                                                   fast growing UV segment in India, with a market share of 56% in Apr
   15.0                                                                   2009-Feb 2010 (vs 46% in Apr 2008-Feb 2009).
    0.0                                                                   M&M consolidated its position in the tractor segment in FY09 with the
             Q4FY09       Q1FY10        Q2FY10       Q3FY10               acquisition of Punjab Tractors (PTL) in August 2008. Following the
                                                                          merger, M&M added two manufacturing plants, taking the total number of
          Promoter Holding          Institutional Holding                 plants to six. As a result, M&M’s tractor segment market share increased
                                                                          to 40.8% in FY09 from 29.8% in FY08. M&M also boosted its presence in
                                                                          China through a new joint venture that will manufacture tractors at a plant
                                                                          in Yancheng, China.


    Exhibit 1: Company structure
                                                                                                Mahindra &
                                                                                                 Mahindra




                                  Automotive                     Farm               Systech (Auto            Infrastructure     Financial       IT Services
                                                               Equipment            Components)              Development        Services



                                    Domestic                   International         Engineering              Mahindra          Mahindra       Tech Mahindra
                                    Operations                  Operations            Services                Holidays &        Finance
                                                                                                               Resort

                                  International                 Mahindra             Stampings                 Lifespace      Mahindra Rural    Bristlecone
                                   Operations                Gujarat Tractors                                 Developers        Housing
                                                                                                                                Finance

                                   Mahindra                     Mahindra                Steel            Mahindra World
                                 Renault (MRPL)                Agribusiness                                  Space


                                    Mahindra                       Mahindra          Composite               Infrastructure
                                 Navistar (MNAL)                   Powerol                                    Developer


                                    Mahindra                  Mahindra USA            Castings                  Acres
                                    Navistars
                                                                                                              Consulting
                                    Engines
                                                                                                              Engineers

                                                             Mahindra China            Gears



                                                                   Mahindra
                                                                   Australia



    Source: Company




       ICICIdirect.com | Equity Research
                                                                                                                                                     Page 2
Mahindra & Mahindra(MAHMAH)




                                            Exhibit 2: Installed production capacity (FY05-09)
   M&M’s merger with PTL in FY09
   contributed to increase in the Farm                          400
   Equipment production capacity                                                                                               322
                                                                                                                   283
                                                                300
                                                                                                   246                               233




                                               ('000 u n its)
                                                                      180         192
                                                                200                                      158             173
                                                                            136         136

                                                                100


                                                                  0
                                                                       FY 05       FY 06            FY 07           FY 08       FY 09


                                                                                    A utomotiv e            Farm Equipment

                                            Source: Company, ICICIdirect.com Research




                                            Exhibit 3: Sales volume (FY05-09)
Robust growth of M&M’s sales volume in
FY05-09 driven by the sustained economic                        300
growth and low penetration of vehicles in
                                                                                                                   231         229
India
                                                                225
                                                                                                   177
                                               ('000 u n its)




                                                                      145         147
                                                                150                                                                  120
                                                                                                         102             99
                                                                                        82
                                                                            63
                                                                 75


                                                                  0
                                                                       FY 05       FY 06            FY 07           FY 08       FY 09


                                                                                    A utomotiv e            Farm Equipment

                                            Source: Company, ICICIdirect.com Research




 ICICIdirect.com | Equity Research
                                                                                                                                      Page 3
Mahindra & Mahindra(MAHMAH)




                                                 Investment Rationale
     M&M has benefitted from the growing
                                                 M&M, Indian largest producer of UVs and tractors, has been one of the
     demand for vehicles and tractors in urban   key beneficiaries of the robust economic growth witnessed during the last
     and rural areas due its wide product        few years. It has benefitted from the growing demand for vehicles and
     portfolio, solid brand equity and strong    tractors in urban and rural areas due its wide product portfolio, solid
     sales and service network
                                                 brand equity and strong sales and service network. We estimate M&M’s
                                                 revenues to grow at a 15% CAGR to Rs 24,429 crore in FY10E-12E
                                                 supported by the low vehicle and tractor penetration in India, positive
                                                 economic outlook by the Finance Minister in Budget 2010 (GDP to grow
                                                 8.5% in FY11E-12E) and increased disposable income in the hands of
                                                 consumers.
                                                 We believe the Automotive segment (56% share of net sales in FY09) will
                                                 lead topline growth (15% CAGR in FY10E-12E to Rs 13,996 crore) driven
                                                 by the sustained demand for UVs in India and launch of new products in
                                                 the carrier segment; sales volume is estimated to grow at a 14% CAGR.
                                                 On the other hand, net sales growth of the Farm Equipment segment
                                                 (43% share of net sales in FY09) is expected to be marginally lower in
                                                 FY10E-12E (14% CAGR to Rs 10,203 crore) due to the consolidated nature
                                                 of the tractor market and high sales base in FY10E; growth of sales
                                                 volume is estimated at a 6.2% CAGR in FY10E-12E. With the economic
                                                 gaining momentum and solid expansion plans by telecom companies, we
                                                 expect the Powerol business to exhibit robust growth in FY11E-12E
                                                 (17.5% CAGR to Rs 1,470 crore), further supporting growth of the Farm
                                                 equipment segment.


                                                 Farm Equipment Segment
   Revenues of the Farm Equipment segment        M&M is among the top-three tractor brands globally. In India, the
   estimated to grow at a 14% CAGR in            company’s market share increased to 40.8% in FY09 (vs 29.8% in FY08)
   FY10E-12E to Rs 10,203 crore driven by
   the low tractor penetration in India and
                                                 following the acquisition of PTL; market share further increased to 43.2%
   strong growth of non-agricultural income      in Q1FY10. In our view, the acquisition was a good strategic fit for M&M
   in rural areas                                due to the strong ‘Swaraj’ brand name and wide dealer network of PTL.
                                                 As a result of the consolidation in the domestic tractor market and
                                                 expected slowing of demand in FY11E (due to the high sales base in
                                                 FY10), we estimate revenue growth of the Farm Equipment segment at a
                                                 14% CAGR in FY10E-12E to Rs 10,203 crore (vs 23.6% in FY07-09). Sales
                                                 volume is estimated to grow at a 6.2% CAGR in FY10E-12E to 195,017
                                                 units.
                                                 Exhibit 4: Net sales

                                                                   12,000                                                       48.0
                                                                                                                       10,203
                                                                                                           8,939
                                                                    9,000                          7,861                        36.0
                                                    (R s cro re)




                                                                                      5,675
                                                                                                                                       (% )




                                                                    6,000                                                       24.0
                                                                            4,008

                                                                    3,000                                                       12.0


                                                                        0                                                       0.0
                                                                            FY 08     FY 09       FY 10E   FY 11E      FY 12E


                                                                                    Rev enues - L HS       G row th - RHS

                                                 Source: Company, ICICIdirect.com Research




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                                                                                                                                      Page 4
Mahindra & Mahindra(MAHMAH)



                                                 Exhibit 5: Domestic market share – Tractors
   M&M’s share in the domestic tractor
   market strengthened following its merger
   with PTL in August 2008                                 100
                                                                        14.0         13.4            13.1            14.5                    13.8
                                                                         1
                                                                        1 .6         10.3            9.8                 8.9                 8.4
                                                            75          9.3          13.9            14.7            13.5                    13.0

                                                                        23.7        23.4            23.5             22.3                    21.6
                                                            50




                                                    (% )
                                                                         1
                                                                        1 .7         9.2             9.1
                                                            25                                                       40.8                    43.2
                                                                        29.7        29.8            29.8

                                                             0
                                                                      FY 06         FY 07          FY 08            FY 09                  Q 1FY 10


                                                                         M&M                   Punjab Tractors                 TA FE +Eicher
                                                                         Es corts              S onalika                       O thers

                                                 Source: Company



                                                 Solid tractor sales growth in FY10
   Resilience shown by the tractor industry in
   YTD FY10 despite severe drought in nearly     M&M’s domestic tractor sales volumes grew by 46% YoY in Apr 2009-Feb
   half of India                                 2010 to 150,213 units (vs ~25% industry growth). Growth was achieved
                                                 despite severe drought in nearly half of India. Resilience of the industry
                                                 growth comes from:
                                                       Over 40% of rural income is non-agricultural, thus lowering the
                                                       degree of dependence on monsoons.
                                                       Increased usage of tractors for non-agriculture activities (eg.
                                                       construction sector).
                                                       Significant potential to increase farm mechanization in India due to
                                                       the low penetration of tractors; tractor ownership by farmers in India
                                                       is still below 10%.
                                                       Incentive for farmers to mechanize due to increase in labour costs;
                                                       NREGS assures 100 days of work to each adult at Rs 100/day, thereby,
                                                       lowering the availability of labour.
                                                       Focus on rural credit disbursement by the government, with
                                                       agriculture credit target raised to Rs 375,000 crore for FY11 (vs
                                                       325,000 crore for FY10).
                                                       Enhanced liquidity through availability of loans to farmers at 7%
                                                       interest rate (less than Rs 200,000) and Kisan credit cards.
                                                       Increased wealth in the hands of farmers due to the sustained growth
                                                       of minimum support prices over the last few years.
                                                 Exhibit 6: Minimum support prices of key crops (Rs. per quintal)
                                                                                       FY06        FY07          FY08               FY09              FY10
                                                 Key kharif crops
                                                 Paddy                                  570         580           645                850              950
                                                 Johar                                  525         540           600                840              840
                                                 Bajra                                  525         540           600                840              840
                                                 Maize                                  525         540           620                840              840
                                                 Key rabi crops
                                                 Wheat                                  650         750          1,000             1,080             1,100
                                                 Barley                                 550         565            650               680               750
                                                 Gram                                 1,435       1,445          1,600             1,730             1,760
                                                 Masur (lentils)                      1,535       1,545          1,700             1,870             1,870
                                                 Source: Ministry of Agriculture




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                                                                                                                                                    Page 5
Mahindra & Mahindra(MAHMAH)



Higher interest rates could inhibit growth      We expect growth of domestic sales volume to remain firm in Q4FY10
of tractor sales in India as two-third of the   (+38% to 40,917 units) due to the low sales base in Q4FY09, ample
tractors sold in the country are on credit
                                                liquidity in the system and strong growth of non-agriculture income. Sales
                                                volume in Jan-Feb 2010 increased 59% YoY to 29,065 units despite latest
                                                government data on rabi crop acreage indicating wheat acreage being
                                                down 1.5% to 268.54 lakh hectares in the first week of January 2010.
                                                For FY11, we remain concerned about the prospects of hardening of
                                                interest rate by the RBI to contain the inflation in the country (CPI of
                                                15.5% in Dec 2009). Substantial credit for the growth of tractor demand in
                                                FY10 can be attributed to the low interest rate environment since more
                                                than two-third of the tractors sold in the country are on loans.
                                                Exhibit 7: Repo rate lowered in Q3FY09

                                                         10.0

                                                          8.0

                                                          6.0
                                                  (% )




                                                          4.0

                                                          2.0

                                                          0.0
                                                                 Jan-08

                                                                          Mar-08

                                                                                   May-08

                                                                                            Jul-08




                                                                                                               N ov -08

                                                                                                                          Jan-09

                                                                                                                                   Mar-09

                                                                                                                                            May-09

                                                                                                                                                     Jul-09




                                                                                                                                                                        N ov -09

                                                                                                                                                                                   Jan-10
                                                                                                     S ep-08




                                                                                                                                                              S ep-09
                                                Source: RBI



We expect domestic tractor demand to            Over the next 2-3 years, we expect the tractor demand to grow in the
grow at an annual rate of 6-8% over the         range of 6% to 8%; in line with the CAGR of the last 15 years. Our growth
next five years
                                                assumptions for M&M during FY11E and FY12E are conservative due to
                                                the consolidated nature of the industry with limited prospects to gain
                                                market share.
                                                Exhibit 8: Tractors domestic sales volume forecasts (FY10E-12E)
                                                                                        FY07            FY08                 FY09               FY10E               FY11E                    FY12E
                                                Domestic sales                         93,911          90,037              113,074             163,949             173,786                  182,475
                                                YoY growth                                                -4.1                25.6                45.0                  6.0                      5.0

                                                Source: Company, ICICIdirect.com Research



                                                Speculation of M&M’s interest in Sonalika group
                                                According to news reports, M&M is considering acquiring the Sonalika
                                                group, India’s fourth-largest tractor manufacturer (8.9% market share in
                                                FY09). The acquisition will allow M&M to strengthen its position in the
                                                highly consolidated tractor market in India. In case the acquisition goes
                                                through, M&M will also get access to Sonalika’s car manufacturing facility.


                                                Pick-up of export volumes
                                                M&M has ambitions to become a global manufacturer of tractors and has
Improved global economic environment to         set-up two manufacturing plants in China, three assembly plants in the
drive tractor export volumes in FY11E
                                                U.S. and one assembly plant in Australia. In the U.S. and Australia, the
                                                company primarily sells compact tractors targeted at recreational farmers.
                                                As a result of the global economic slowdown, M&M’s tractor export
                                                volumes declined by 21% YoY in FY09 to 6,852 units.




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                                                                                                                                                                                        Page 6
Mahindra & Mahindra(MAHMAH)



                                          With the improvement in global economic outlook in recent months due
                                          to the governments’ stimulus packages, we estimate M&M’s export
                                          volumes to grow 30% in FY10E and 28% in FY11E. M&M’s tractor export
                                          volumes have picked up during the last six months with the company
                                          cloaking average monthly sales of 875 units in Sept 2009-Feb 2010 (vs
                                          506 units/month during Mar-Aug 2009).
                                          Exhibit 9: Tractor exports sales volume forecasts (FY10E-12E)
                                                                            FY07      FY08            FY09       FY10E      FY11E        FY12E
                                          Export sales                      7,638     8,673           6,852       8,906     11,401       12,541
                                          YoY growth                                   13.6           -21.0        30.0       28.0         10.0

                                          Source: Company, ICICIdirect.com Research


                                          Diversifying from tractor business
                                          Due to the cyclical nature of the tractor business which has a strong co-
                                          relation with monsoons, M&M has diversified the Farm Equipment
                                          segment. The company has established several businesses in recent
                                          years within the segment, including Powerol (power generators and
                                          engines), Mahindra Applitrac (crop harvesters and cutters), Mahindra
                                          Samriddhi (agricultural services) and Mahindra ShubhLabh (seeds).
                                          Among these businesses, Powerol is the largest and generates higher
                                          margins compared to the tractor business. Powerol is the power
                                          generator business primarily catering to the telecom sector. It
                                          manufactures and sells diesel gensets in the range of 5kVA to 320kVA, in
                                          addition to marine engines. The business has grown rapidly with
                                          revenues growing to Rs 1,010 crore in FY09 (19% share of Farm Segment
                                          revenues) from Rs 47 crore in FY05 driven by the rapid proliferation of
                                          telecom infrastructure in India and the power shortage in the country.
                                          Growth was subdued in Apr-Dec 2009 (+6% YoY to Rs 750 crore) due to
                                          the slowdown in the expansion of telecom towers. As a result, we expect
                                          growth to remain flat in FY10E. However, growth is expected to pick-up in
                                          FY11E-12E (17.5% CAGR to Rs 1,470 crore) driven by the improved
                                          economic environment and expected growth of client base.
                                          Exhibit 10: Revenue growth of Powerol business to remain flat in FY10
With robust GDP growth and expansion
plans by telecom companies, we estimate                    1,600                                                                     1,470
Powerol revenues to grow at a 17.5%                                                                                        1,278
CAGR in FY10-12E to Rs 1,470 crore
                                                           1,200                                         1,010    1,065
                                            (R s cro re)




                                                            800
                                                                                              569
                                                                                    327
                                                            400
                                                                           124
                                                                    47
                                                              0
                                                                   FY 05   FY 06    FY 07     FY 08      FY 09    FY 10E   FY 11E    FY 12E




                                          Source: Company, ICICIdirect.com Research




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                                                                                                                                       Page 7
Mahindra & Mahindra(MAHMAH)




                                              Automotive Segment
Positive outlook for the automotive           Under its Automotive segment, M&M manufactures UVs, three wheelers
segment in FY11E-12E due to the launch        and LCVs. The company has a wide product portfolio catering to rural and
of new products and sustained demand for
existing products                             semi-urban customers, defence requirements and sophisticated urban
                                              UVs. As a result of the successful launch of the Xylo, Gio and Maximo
                                              models, coupled with the sustained growth in demand for UVs in India,
                                              we estimate revenue of the Automotive segment to grow at a 15% CAGR
                                              in FY10-12E to Rs 13,996 crore. Sales volume is estimated to grow at a
                                              14% CAGR in FY10E-12E to 381,817 units.
                                              Exhibit 11: Net sales

                                                                18,000                                                       48.0
                                                                                                                    13,996
                                                                13,500                                  12,421               36.0
                                                                                               10,534
                                                 (R s cro re)



                                                                                   7,385




                                                                                                                                    (% )
                                                                 9,000   7,189                                               24.0


                                                                 4,500                                                       12.0


                                                                     0                                                       0.0
                                                                         FY 08     FY 09       FY 10E   FY 11E      FY 12E


                                                                                 Rev enues - L HS       G row th - RHS

                                              Source: Company, ICICIdirect.com Research



Solid growth potential of UV sales in India   We believe attractive growth opportunities exist for M&M’s automotive
                                              segment due to favourable factors internal and external to the company,
                                              including:
                                                          Low proportion of UVs-to-total vehicles sales in India (14% in Apr
                                                          2009-Feb 2010) compared to other Asian countries with similar
                                                          economic and demographic profile
                                                          Strong economic growth over the next five years resulting in higher
                                                          disposable income; GDP estimated to grow at a CAGR of 7.5% during
                                                          2009-14E as per the IMF
                                                          Commissioning of M&M’s new manufacturing plant in Chakan (near
                                                          Pune) to boost the company’s capacity to manufacture new
                                                          generation of UVs and commercial vehicles (CVs)
                                                          Joint ventures (JVs) formed by M&M to boost its technological and
                                                          product development capabilities in several sub-sectors (CVs, cars
                                                          and two-wheelers)
                                              Dominance of the UV segment
                                              M&M is a strong player in the UV segment with a market share of 56% in
                                              Apr 2009-Feb 2010 (vs 46% during the same period last year). Growth in
                                              FY10 has been driven by the highly successful launch of the Xylo model
                                              in January 2009 (more than 20,000 units sold by end-Oct 2009) and solid
                                              sales growth of the Bolero model. Further, the success of Xylo validates
                                              the company’s claims of being a manufacturer of high-end vehicles
                                              targeted at urban consumers.




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                                                                                                                                   Page 8
Mahindra & Mahindra(MAHMAH)



                                         Exhibit 12: Market share trends – UV segment
M&M dominates the UV segment in India
due to its diverse product range,                  100                           9.1             7.5        9.1                     5.8
                                                                10.8                                                    10.5
aggressive pricing strategy and strong                                                                                              6.0
                                                                7.6              9.8             10.0       8.7         7.0
sales and service network                                                                                                           12.9
                                                    75          19.2             19.4            21.8      20.3         18.5
                                                                                                                                    19.6
                                                                18.0             18.8                      19.6         17.1
                                                                                                 19.8




                                            (% )
                                                    50

                                                                                                                                    55.8
                                                    25         44.4             43.0             40.9      42.3         46.9


                                                     0
                                                               FY 05            FY 06        FY 07        FY 08       FY 09       FY 10*


                                                         M&M           Toyota           Tata Motors       G eneral Motors      O thers

                                         Source: SIAM, *FY10 is for Apr 2009-Feb 2010



M&M”s strongest competitor in the UV
                                         M&M’s strong position in the UV segment is due to:
segment is Tata Motors
                                               Aggressive pricing strategy
                                               Limited competition in the UV segment
                                               Wide sales and services network (even in rural areas)
                                         Although Tata Motors lags M&M in market share, we believe the former
                                         presents M&M the strongest competition. Tata Motors’ Safari and Sumo
                                         models are available at approximately similar prices to M&M’s UVs
                                         (Bolero, Scorpio and Xylo). Further, the Tata Safari offers the toughest
                                         competition to M&M’s Scorpio and Xylo in the personal vehicle segment
                                         (M&M’s key segment) and enjoys a bigger pie in the growing Canteen
                                         Stores Department (CSD) market.
                                         On the other hand, Toyota Innova, though a technologically superior
                                         product, is a smaller threat to M&M as it primarily focuses on the
                                         commercial taxi segment and is more expensive. Tata Motors has plans
                                         to launch a new SUV (Tata Aria), thereby, likely to increase the
                                         competition for Mahindra Xylo and Toyota Innova.
                                         Exhibit 13: Sales volume of best selling UVs in India (Apr 2009-Jan 2010)

                                                    Bolero - M&M

                                                    Innov a - M&M

                                                   S corpio - M&M

                                                      X ylo - M&M

                                             S umo - Tata Motors

                                                    Tav era - G M

                                            S af ari - Tata Motors

                                                                       0                20,000          40,000        60,000         80,000


                                         Source: Company, Crisil




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Mahindra & Mahindra(MAHMAH)




Robust growth of M&M’s UVs sales in Apr     As a result of M&M’s strong market position and impressive performance
2009-Feb 2010                               in Apr 2009-Feb 2010, we estimate M&M’s domestic UVs sales growth in
                                            FY10E to be robust (+37.5% to 211,348 units). Growth in FY10 has been
                                            driven by:
                                                 Strong growth of Xylo sales (~300% YoY to 28,500 units)
                                                 Government’s stimulus package (reduction of excise duty)
                                                 Low interest rates environment
Sales growth expected to slow down in
FY11E due to high sales base in FY10E and        Cash infusion from the sixth-pay commission
possible adverse impact of the increased
excise duty rate
                                                 Low sales base in FY09
                                            However, we are cautious on the growth prospects in FY11E due to the
                                            high sales base in FY10, rising interest rates, adverse impact of the recent
                                            excise duty hikes on vehicle sales and higher vehicle prices as a
                                            consequence of new emission norms. As a result, we forecast UV sales
                                            volume to slowdown to 11% in FY11E and 10% in FY12E.


                                            Exhibit 14: Sales volume forecasts for UVs (FY10E-12E)

                                                                                               FY08    FY09   FY10E   FY11E   FY12E
                                            Utility Vehicles                                 148,758 153,655 211,348 234,597 258,056
                                            Growth (YoY)                                                  3.3   37.5    11.0    10.0
                                            Scorpio                                           39,933 29,995 36,594 39,521 42,683
                                            Growth (YoY)                                               -24.9    22.0      8.0     8.0
                                            Xylo                                                   0   7,246 28,500 30,780 33,242
                                            Growth (YoY)                                                       293.3      8.0     8.0
                                            Bolero                                            51,010 55,924 71,583 80,173 88,190
                                            Growth (YoY)                                                  9.6   28.0    12.0    10.0
                                            Pick-up (LCV with capacity less than 3.5 tons)    44,976 47,629 59,536 66,681 74,682
                                            Growth (YoY)                                                  5.9   25.0    12.0    12.0
                                            Others (Commander/Jeep)                           12,839 12,861 15,135 17,442 19,258
                                            Growth (YoY)                                                  0.2   17.7    15.2    10.4
                                            Source: SIAM, ICICIdirect.com Research



                                            New SUV to be launched over the next 2-3 years
                                            Further upside potential exists to our forecasts as the management has
                                            announced plans to launch a new SUV that will be positioned a notch
                                            above the Scorpio. This will be the first major launch by M&M in the UV
                                            segment post Xylo. The new UV is likely to be launched over the next 2-3
                                            years, and will be available in the domestic and export markets. The
                                            company will invest Rs 600-700 crore for developing the UV. However,
                                            we have not factored in its growth prospects in our forecasts due to
                                            limited information on this product.
                                            Robust sales growth expected in FY11 for Gio and Maximo models
Recent launch of Gio and Maximo models
to drive sales of M&M’s three wheeler       We believe substantial growth opportunities exist for M&M in the sub-one
segment in FY11E                            tonne four wheeler cargo carrier market due to the recent launch of the
                                            Gio and Maximo models by the company. These products are targeted at
                                            the three wheelers good carrier segment, which clocks annual sales
                                            volume of 80,000-85,000 units. Already, M&M is the second-largest player
                                            in this segment with a market share of 15% in Apr 2009-Feb 2010 by
                                            selling two models, Alpha and Champion. With the launch of the new
                                            products, we expect sales of M&M’s existing three wheelers to be
                                            cannibalized to a certain extent.




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Mahindra & Mahindra(MAHMAH)




                                          Exhibit 15: Market share trends – Three wheeler segment

                                                    100.0                                 7.5                   7.2                8.5
                                                                     1
                                                                    1 .1
                                                                                          9.3                  12.7                10.0
                                                                   8.3
                                                     75.0
                                                                   35.7                   41.0                                      41.1
                                                                                                               41.3




                                             (% )
                                                     50.0


                                                     25.0          44.8                  42.2                  38.7                40.4


                                                      0.0
                                                                  FY 07                  FY 08                FY 09               FY 10*


                                                                     Bajaj A uto          Piaggio V ehicles           M&M        O thers

                                          Source: SIAM, *FY10 is for Apr 2009-Feb 2010



Strong growth prospects of the recently
                                          In our view, the growth of the sub-one tonne four wheeler cargo carrier
launched Gio and Maximo models by         market is driven by:
M&M
                                                Aggressive pricing allowing people to upgrade to a four wheeler
                                                without having to spend Rs 3-3.5 lakh
                                                Extra stability provided by a four wheel platform
                                                Sustained economic growth and optimism about the future, and easy
                                                availability of credit
                                          As a result, we expect robust growth of M&M’s three wheeler segment
                                          sales (includes Gio and Maximo) in FY10E (+27% to 56,598 units) and
                                          FY11E (+48% to 83,640 units). Gio has been well-received by the market
                                          with 1,838 units sold in Dec 2009 (vs 755 units sold in the first month of
                                          sales in October 2009). Further, Tata Motors and Piaggio Motors are
                                          expected to launch similar products due to the large market potential.
                                          The 0.85 tonne mini-truck Maximo is another high potential product that
                                          is pitted against Tata Ace. The company began selling the product from
                                          the beginning of February 2010 and has received a positive response
                                          from customers.
                                          Exhibit 16: Overview of M&M’s Gio and Maximo models
                                                                                                                       Gio                 Maximo
                                          Capacity (tonnes)                                                           0.50                      0.85
                                          Price (Rs lakh)                                                             1.65                      2.79
                                          Key competitors                                                   Three wheelers                 Tata Ace


                                          Source: Company


                                          Exhibit 17: Sales volume forecasts (FY10E-12E)
                                                                                                    FY08       FY09     FY10E    FY11E       FY12E
                                          Three wheelers, Gio and Maximo                           33,927     44,533    56,598   83,640      92,004
                                          Growth (YoY)                                                          31.3      27.1     47.8        10.0
                                          Light Commercial Vehicles                                10,427      8,605     9,687   10,655      11,721
                                          Growth (YoY)                                                         -17.5      12.6     10.0        10.0

                                          Source: Company, ICICIdirect.com Research




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                                                                                                                                            Page 11
Mahindra & Mahindra(MAHMAH)




                                       Likely launch of pick-up in US market
                                       M&M is expected to launch the Scorpio UV and a compact pick-up (based
                                       on Scorpio platform) in the U.S. market in FY11E. We believe this
                                       presents significant growth opportunities for M&M given the vast volumes
                                       in the US market. Further, the vehicle will have a diesel engine, providing
                                       a key differentiation for M&M in the U.S., where majority of vehicle sold
                                       have petrol engines. As a result, we estimate export volumes to grow at a
                                       21% CAGR in FY10E-12E to 15,214 units.
                                       Exhibit 18: Sales volume forecasts for exports (FY10E-12E)
                                                                                         FY08       FY09    FY10E     FY11E     FY12E
                                       Exports                                          12,359      8,550   10,373    13,831    15,214
                                       Growth (YoY)                                       56.8      -30.8     21.3      33.3      10.0

                                       Source: Company, ICICIdirect.com Research


                                       Doubling of production capacity due to new plant in Chakan
M&M will be able to fund majority of   M&M’s Automotive segment capacity (322,000 units in FY09) will be more
capex (Rs 7,000 crore in FY10E-13E)    than doubled with the commissioning of new plant in Chakan (annual
through internal accruals              production capacity of 350,000 units). The plant will be used to
                                       manufacture trucks (through JV with Navistar), a new SUV, mass value
                                       platform and new variants of Xylo. The total capex during FY10E-13E will
                                       be Rs 7,000 crore, which will be shared by M&M and its 100% SPV
                                       Mahindra Vehicles Manufacturers Limited.
                                       Exhibit 19: Capacity of new Chakan plant
                                       Type                                                                    Annual capacity (units)
                                       Trucks                                                                                 50,000
                                       Mass market platform                                                                  120,000
                                       New SUV                                                                                90,000
                                       Xylo variants                                                                          90,000
                                       Total capacity                                                                        350,000
                                       Source: Company, ICICIdirect.com Research



                                       We believe M&M will be in a comfortable position to fund majority of its
                                       capex plans through internal accruals as operating cash flows of Rs 6,398
                                       crore is estimated to be generated over FY10E-12E. In addition, the
                                       company had total borrowings of Rs 4,053 crore in FY09 (debt-to-equity
                                       ratio of 0.47). The existence of convertible debt of Rs 1,662 crore on the
                                       balance sheet (in-the-money) boosts the debt taking capacity of the
                                       company as this debt is likely to be converted into equity. Conversion of
                                       this debt will contribute to earning dilution as nearly 2 crore new shares
                                       (+7%) are estimated to be issued in FY09-11E.

                                       Exhibit 20: Convertible debt on M&M’s balance sheet (standalone)
                                                                                            Conversion Date     Conversion price (Rs)
                                       FCD                                                            Jan-10                     745
                                       Zero Coupon FCCB                                              Mar-11                      922

                                       Source: Company




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                                                                                                                               Page 12
Mahindra & Mahindra(MAHMAH)




                                           Margins under pressure
                                           On a sequential basis, M&M’s EBITDA margins declined by 367bp in
Higher sales volume in Apr-Dec 2009 and
                                           Q3FY10 to 14.9% as a result of the recent upturn in input prices
synergies from PTL merger contributed to
the significant margin expansion           (especially steel). Nevertheless, margins have improved since Q4FY09
                                           (3%) driven by:
                                                Robust growth of sales volume in the Automotive and Farm
                                                Equipment segments
                                                Lower steel prices compared to the peaks witnessed in 2008
                                                Cost synergies achieved following the acquisition of PTL
                                           EBIT margins of the Farm Equipment segment significantly improved in
                                           Q3FY10 to 18.3% (vs 10.8% in Q3FY09) due to lower input prices and
                                           cost synergies achieved following the acquisition of PTL, through
                                           common sourcing and ramp up of production volumes. M&M managed to
                                           save Rs 3,965 per tractor on the side of Punjab Tractors as a result of
                                           economies of scale; Punjab Tractors was producing 27,000-28,000 units
                                           annually vs nearly 90,000 units by M&M. Further, the acquisition provided
                                           M&M access to several low cost suppliers of Punjab Tractors located in
                                           Punjab and Haryana.
                                           We calculate co-efficient of correlation of -0.41 and -0.62 between growth
                                           of iron & steel prices and EBIT margins of the Automotive and Farm
                                           equipment segments, respectively, during Q1FY07-Q2FY10. Correlation
                                           becomes even stronger (-0.73 for Automotive segment and -0.87 for Farm
                                           Equipment segment) when there is a one quarter lag between rise in input
                                           prices and profitability.
                                           Exhibit 21: High correlation between EBIT margins and iron & steel prices

High correlation between M&M’s EBIT                40.0
margins and steel prices                           30.0

                                                   20.0
                                                   10.0
                                             (%)




                                                    0.0
                                                           Jun-06




                                                                                                                                   Jun-08




                                                                                                                                                              Mar-09

                                                                                                                                                                       Jun-09
                                                                             Dec-06

                                                                                      Mar-07

                                                                                               Jun-07



                                                                                                                 Dec-07

                                                                                                                          Mar-08




                                                                                                                                                     Dec-08




                                                                                                                                                                                         Dec-09
                                                                    Sep-06




                                                                                                        Sep-07




                                                                                                                                            Sep-08




                                                                                                                                                                                Sep-09
                                                   -10.0

                                                   -20.0
                                                   -30.0
                                                       Automotive - EBIT margin                                                       Farm Equipment - EBIT margin
                                                       Iron & Steel Index - YoY grow th                                               Rubber Index - YoY growth

                                           Source: Company, MOSPI




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                                                                                                                                                                                         Page 13
Mahindra & Mahindra(MAHMAH)



                                               Exhibit 22: HR steel prices                                                Exhibit 23: Rubber prices

                                                                    50,000                                                                        160




                                                                                                                              (R s/kilo g ram )
                                                                                                                                                  120




                                                   (R s/to n n e)
                                                                    37,500
                                                                    25,000                                                                         80
                                                                    12,500                                                                         40

                                                                         0                                                                          0




                                                                                                                                                        D ec-08

                                                                                                                                                                  F eb-09


                                                                                                                                                                                     Jun-09



                                                                                                                                                                                                       O ct-09

                                                                                                                                                                                                                 D ec-09
                                                                                                                                                                            Apr-09


                                                                                                                                                                                              Aug-09
                                                                             Apr-05

                                                                                      Apr-06

                                                                                               Apr-07

                                                                                                        Apr-08

                                                                                                                 Apr-09
                                               Source: Industry                                                           Source: Rubber Board




     EBITDA margins expected to decline in     We expect margins to decline across segments in Q4FY10 and FY11E due
     FY11E due to higher raw material prices   to higher material costs such as steel and rubber and higher depreciation
     (especially steel)
                                               (due to new plant). Steel prices are likely to stay firm in FY11E due to
                                               robust domestic demand, higher input costs (iron-ore and coking coke
                                               which have increased by 65% to 70% from lows in 2009) and the
                                               expected revival of global steel demand. As per the Ministry of Steel,
                                               demand for the commodity rose nearly 8% in Apr-Dec 2009 driven by
                                               solid demand from the automobile and infrastructure sectors. Similarly,
                                               rubber prices have witnessed a significant uptrend in recent months with
                                               price of the RSS – Grade rubber rising to Rs 136 per kilograms in January
                                               2010 (+93% YoY).
                                               According to the management, further scope exists for margin expansion
                                               due to:
                                                        Full realization of benefits from the acquisition of Punjab Tractors
                                                        Opportunities for common sourcing due to management plans to
                                                        bring together the back-end functions of the Automotive and Farm
                                                        Equipment segments
                                                        Extraction of synergies from Systech, Mahindra Finance and Two
                                                        wheelers business
                                               However, we believe margin expansion will be a challenge for M&M in
                                               FY11E due to higher depreciation expenses and higher input prices. We
                                               estimate EBITDA margins will contract to 14.4% in FY11E and 14.2% in
                                               FY12E (vs. 15.2% in FY10E). While EBIT margins are estimated to decline
                                               to 12.5% in FY12E from 13.9% in Apr-Dec 2009.




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                                                                                                                                                                                                       Page 14
Mahindra & Mahindra(MAHMAH)




                                     Risks and Concerns
                                     Deficit monsoons can adversely impact growth
                                     M&M derives majority of revenues of its Farm Equipment segment from
                                     rural areas, which is highly dependent upon monsoons. Further, rural and
                                     semi-urban regions account for a significant proportion of revenues of the
                                     automotive segment. As a result, lower-than-expected monsoons and
                                     poor agricultural production can substantially reduce M&M’s topline
                                     growth. In Apr 2009-Feb 2010, tractor demand in India grew robustly
                                     despite drought conditions in approximately half of the country due to
                                     pro-farmer government policies such as the easy availability of farm
                                     credit, increase in MSPs and strong growth of non-farm income (in
                                     addition to the low sales base in FY09). Notwithstanding the above
                                     factors, tractor demand could have been seriously lower.
                                     Margin contraction on rising commodity prices
                                     Significant rise in commodity prices (steel, rubber, crude oil, etc) may
                                     lead to lower profitability. In FY09, rise in commodity prices coupled with
                                     the economic slowdown resulted in M&M’s margins to significantly
                                     contract. M&M’s bottomline growth in FY11E-12E continues to be
                                     challenged by the continued increase in steel and rubber prices. On the
                                     other hand, increase in crude oil prices can adversely impact the demand
                                     for M&M’s products as UVs typically have lower fuel efficiency.
                                     Demand slowdown on tightening of credit policy and higher excise duty
                                     Increase of interest rate by the central bank may slowdown the growth of
                                     vehicle and tractor sales. The benign interest rate environment in India
                                     since September 2008 has been largely responsible for the robust growth
                                     of M&M’s topline in Apr-Dec 2009. Any significant tightening of credit
                                     policy by the RBI to contain the inflation may have an adverse impact on
                                     the demand for vehicles and tractors. Further, the recent 2% hike in
                                     excise duty on vehicles, with vehicle prices expected to increase by Rs
                                     8,000-30,000 (depending upon model), could lead to the slowing down of
                                     auto demand in India.
                                     Exhibit 24: New excise duty structure announced in Budget 2010
                                                                                                             Excise duty (%)
                                     Type of Car                                                      FY10                     FY11
                                     Small Cars (length not exceeding 4,000mm)
                                     Not exceeding 1,200cc - Petrol/LPG/CNG                           8.0%                     10.0%
                                     Not exceeding 1,500cc - Diesel                                   8.0%                     10.0%
                                     Big Cars/SUVs/MUVs (length exceeding 4,000mm)
                                     Not exceeding 1,500cc                                         20.0%                     22.0%
                                     1,501cc and above                                   20% + Rs 15,000              22% + 15,000
                                     Commercial Vehicles                                            8.0%                     10.0%
                                     Tractors                                                       8.0%                     10.0%
                                     Source: Budget 2010




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Mahindra & Mahindra(MAHMAH)




                                     Financials
                                     Robust topline growth expected in FY11E
                                     As a result of the robust performance in Apr-Dec 2009 due to the easy
                                     availability of credit and reduction of excise duties, revenues increased by
                                     39.4% YoY to Rs. 13,297 crore. Consequently, we estimate strong topline
                                     growth in FY10E (+41% to Rs. 18,488 crore). In our view, revenues will
                                     continue to grow strongly in FY11E (+16.6% to Rs 21,561 crore) driven by
                                     the sustained growth of the UV segment (though at lower rate than FY10)
                                     and new product launches by the company in domestic and export
                                     markets. In our forecasts, we have not accounted for the incremental
                                     sales volume from the expected launch of the new SUV by M&M over the
                                     next 2-3 years. Overall, revenues are estimated to grow at a CAGR of 23%
                                     during FY09-12E to Rs. 24,429 crore.
                                     Exhibit 25: Revenue growth of 16.6% estimated for FY11E

                                                     30,000                                                                              50.0
                                                                                                                             24,429
                                                                                                                 21,561
                                                     22,500                                         18,488                               37.5
                                      (R s cro re)




                                                                                         13,094




                                                                                                                                                  (% )
                                                     15,000                    11,541                                                    25.0
                                                                      9,889

                                                          7,500                                                                          12.5


                                                             0                                                                           0.0
                                                                      FY 07    FY 08     FY 09      FY 10E       FY 11E      FY 12E


                                                                                  Total rev enues - L HS                   G row th - RHS

                                     Source: Company, ICICIdirect.com Research



                                     EBITDA to grow 155% in FY10E…
                                     After the significant de-growth of EBITDA in FY09 (down 20% to Rs. 1,093
                                     crore) due to high input prices and the economic slowdown, we expect
                                     stellar growth of EBITDA in FY10E (+155% to Rs. 2,784 crore); EBITDA
                                     grew 294% YoY in Apr-Dec 2009 to Rs. 2,110 crore. However, growth will
                                     come under pressure in FY11E and FY12E due to expected increase in
                                     input costs (especially steel). As a consequence, we estimate EBITDA to
                                     grow to Rs. 3,445 crore in FY12E, CAGR of 11% in FY10E-12E.
                                     Exhibit 26: EBITDA growth to slowdown in FY11E

                                                           4,000                                                                            200.0
                                                                                                                                3,445
                                                                                                                   3,100
                                                                                                      2,784                                 150.0
                                                           3,000
                                           (R s cro re)




                                                                                                                                            100.0
                                                                                                                                                     (% )




                                                           2,000
                                                                                1,367                                                       50.0
                                                                       1,126               1,093
                                                           1,000
                                                                                                                                            0.0

                                                                  0                                                                         -50.0
                                                                       FY 07     FY 08     FY 09      FY 10E      FY 11E        FY 12E


                                                                                   EBITDA - L HS               G row th - RHS

                                     Source: Company, ICICIdirect.com Research




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                                                                                                                                                    Page 16
Mahindra & Mahindra(MAHMAH)




                                     …but margin expansion a challenge in FY11E
                                     In our view, M&M will find it challenging to sustain margins in FY11E due
                                     to the expected rise in input costs. As a result of the higher steel and
                                     rubber prices, EBITDA margins declined by 367bp QoQ to 14.9% in
                                     Q3FY10. With input prices anticipated to reach higher levels in FY11E and
                                     challenges associated with raising product prices, we estimate EBITDA
                                     margins will decline further to 14.4% in FY11E (vs 15.2% in FY10E).
                                     Similarly, EBIT margin is estimated to decline to 12.5% in FY12E from
                                     13.1% in FY10E.
                                     Exhibit 27: Analysis of margins

                                               20.0


                                               15.0                                                    15.2           14.4       14.2
                                                                           12.6                        13.1           12.6       12.5
                                                             11.7
                                                                           10.4
                                        (% )




                                               10.0          9.5
                                                                                      8.6
                                                                                      6.3
                                                5.0


                                                0.0
                                                        FY 07         FY 08       FY 09            FY 10E        FY 11E      FY 12E


                                                                          EBITDA Margins                    EBIT Margins

                                     Source: Company, ICICIdirect.com Research



                                     Return ratios to decline in FY11
                                     Return ratios will substantially improve in FY10E due to increased
                                     profitability and higher sales volume. However, we expect returns to
                                     tapper down in FY11E and FY12E as a result of the margin contraction.
                                     Exhibit 28: RoE & RoCE expected to decline in FY11E-12E

                                               40.0

                                                             33.7                                      31.3
                                               30.0                                                                   25.2
                                                                           27.9
                                                                                                       24.8                      25.2
                                                                                                                      24.5       22.3
                                                             20.5
                                        (% )




                                               20.0                        18.7       17.4

                                               10.0                                   9.9


                                                0.0
                                                        FY 07         FY 08       FY 09            FY 10E        FY 11E      FY 12E


                                                                                            RO E              RO CE

                                     Source: Company, ICICIdirect.com Research




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                                                                                                                                 Page 17
Mahindra & Mahindra(MAHMAH)




                                         Valuations


   Current stock price offers limited    M&M is the largest producer of UVs and tractors in India. The company
   upside despite the improved revenue   has enjoyed stellar growth in Apr 2009-Feb 2010 for UVs and tractors
   streams from new product launches     fuelled by its strong brand visibility, wide sales and service network and
   by the company and sustained          aggressive pricing strategy. Easy availability of financing and strong
   demand for existing products          liquidity in the rural market are the key drivers for sales growth in FY10.
                                         In our view, M&M’s Automotive segment is expected enjoy strong growth
                                         in FY11E (though lower than FY10) driven by the solid growth potential of
                                         the UV market, new product launches in the sub-one tonne carrier
                                         segment and launch of UVs in the U.S. market. The Farm Equipment
                                         segment’s growth will be driven by the continuance of pro-farmer policies
                                         by the government and low penetration of tractors in India.
                                         At the current market price of Rs 1,090, the stock is trading at EV/EBITDA
 Core business valued at Rs 802/share
 at a FY11E EV/EBITDA of 8x
                                         of 10.2x in FY11E and 9.2x in FY12E. We have adopted a SOTP based
                                         methodology to value the core business (Rs 802/share) and listed
                                         subsidiaries (Rs 415/share). We value the core business (automotive and
                                         tractors) using FY11 EV/EBITDA of 8x (average multiple of peers using last
                                         one year’s average prices). At the current stock price, we believe limited
                                         upside potential exists despite the improved revenue streams from the
                                         new product launches and sustained demand for existing products, we
                                         initiate the coverage on the stock with an Buy rating.
                                         We have valued the other listed subsidiaries based on their market
                                         capitalisation. A holding company discount of 10% has been applied on
                                         the market capitalisation. We have not included the valuation of M&M’s
                                         unlisted subsidiaries, providing an upside to our valuation case.

                                         Exhibit 29: Valuation under SOTP based model

                                                                               M&M stake          EV ontribution to M&M                Remark
                                                                                            Rs crore Rs crore Rs/share
                                         Enterprise value - Core Business                              24,801       888.4 FY11E EV/EBITDA of 8x
                                         Less: net debt                                                 2,409        86.3
                                         Value of Core Business                                        22,392       802.1

                                         Value of listed subsidaries
                                            Tech Mahindra                            48.8    11,233    5,485      196.5      Current market cap
                                            M&M Financial Services                   60.0     3,682    2,210       79.2      Current market cap
                                            Mahindra Lifespace                       51.1     1,572      803       28.8      Current market cap
                                            Mahindra Ugine Steel                     50.7       221      112        4.0      Current market cap
                                            Mahindra Forgings                        60.6       949      575       20.6      Current market cap
                                            Mahindra Holidays & Resorts              83.0     4,428    3,675      131.6      Current market cap
                                            Satyam Computer Services                 20.8    11,488    2,390       85.6      Current market cap
                                         Value of subsidiaries                                        15,249      460.6
                                         Value post 10% holding co. discount                          10,674      414.6

                                         Value of equity per share                                                1,217


                                         Source: Company, ICICIdirect.com Research




 ICICIdirect.com | Equity Research
                                                                                                                                     Page 18
Mahindra & Mahindra(MAHMAH)




   Exhibit 30: Valuation – M&M versus peers
                                                    CMP arket cap                                     EPS                                               P/E (x)                                         EV/E (x)
                                                18-Mar-10 Rs crore                 FY10E              FY11E         FY12E                  FY10E            FY11E               FY12E       FY10E          FY11E           FY12E
    M&M                                             1,090 30,430                    67.7               68.9          77.4                   16.1              15.8               14.1        11.6            10.2            9.2
    Ashok Leyland                                      53    7,097                   2.4                3.3           4.1                   22.2              16.2               13.0        13.1            10.0            8.5
    Tata Motors                                       781 37,442                    32.7               40.0          49.8                   23.9              19.5               15.7        12.5            10.4            8.2
    Maruti Suzuki                                   1,435 41,415                    81.3               93.0         108.1                   17.7              15.4               13.3        11.4            10.0            8.5
    Hero Honda                                      1,935 38,570                    99.0              111.3         125.7                   19.5            346.4                 0.8        14.9            13.7           12.6
   Source: ICICI.direct.com Research, Reuters




                                                     Exhibit 31: EV/EBITDA band chart

                                                                       60,000

                                                                       45,000
                                                        (R s cro re)




                                                                       30,000

                                                                       15,000

                                                                               0
                                                                                   Mar-04




                                                                                                           Mar-05




                                                                                                                                  Mar-06




                                                                                                                                                           Mar-07




                                                                                                                                                                                  Mar-08




                                                                                                                                                                                                      Mar-09
                                                                                              S ep-04




                                                                                                                       S ep-05




                                                                                                                                              S ep-06




                                                                                                                                                                      S ep-07




                                                                                                                                                                                           S ep-08




                                                                                                                                                                                                               S ep-09
                                                                                                                     Price                       10.6x                          14.0x                7.2x

                                                     Source: Company, ICICIdirect.com Research




                                                     Exhibit 32: PE band chart

                                                                       1,400

                                                                       1,050
                                                        (R s)




                                                                        700

                                                                        350

                                                                          0
                                                                               Mar-04




                                                                                                         Mar-05




                                                                                                                                 Mar-06




                                                                                                                                                          Mar-07




                                                                                                                                                                                  Mar-08




                                                                                                                                                                                                      Mar-09
                                                                                            S ep-04




                                                                                                                     S ep-05




                                                                                                                                             S ep-06




                                                                                                                                                                     S ep-07




                                                                                                                                                                                           S ep-08




                                                                                                                                                                                                               S ep-09




                                                                                                                    Price                      12.3x                           16.4x                 8.2x

                                                     Source: Company, ICICIdirect.com Research




 ICICIdirect.com | Equity Research
                                                                                                                                                                                                                         Page 19
Mahindra & Mahindra(MAHMAH)




                                     Exhibit 33: Profit & Loss Account
                                     Rs Crore                                     FY08      FY09    FY10E    FY11E      FY12E
                                     Total Revenues                              11,541    13,094   18,488   21,561     24,429
                                     Growth (%)                                    16.7      13.5     41.2     16.6       13.3
                                     Op. Expenditure                             10,175    12,001   15,704   18,461     20,984
                                     EBITDA                                       1,367     1,093    2,784    3,100      3,445
                                     Growth (%)                                    21.4     -20.0    154.8     11.4       11.1
                                     Depreciation                                   239       292      374      393        393
                                     EBIT                                         1,128       801    2,410    2,707      3,051
                                     Interest                                         88      134      201      230        209
                                     Other Income                                   194       359      399      447        445
                                     Extraordinary Item                             173        10       91         0         0
                                     PBT                                          1,407     1,036    2,699    2,924      3,287
                                     Growth (%)                                     -2.1    -26.3    160.4       8.3      12.4
                                     Tax                                            303       200      744      864        972
                                     Rep. PAT before MI                           1,103       837    1,954    2,060      2,315
                                     Minority Interest (MI)                            0        0        0         0         0
                                     Rep. PAT after MI                            1,103       837    1,954    2,060      2,315
                                     Adjustments                                       0       31        0         0         0
                                     Adj. Net Profit                              1,103       868    1,954    2,060      2,315
                                     Growth (%)                                      3.3    -21.4    125.3       5.4      12.4
                                     Source: Company, ICICIdirect.com Research




                                     Exhibit 34: Balance Sheet
                                     Rs Crore                                     FY08      FY09    FY10E    FY11E      FY12E
                                     Equity Capital                                 243       279      289      299        299
                                     Reserves & Surplus                           4,107     4,983    6,949    9,297     10,869
                                     Shareholder's Fund                           4,350     5,262    7,237    9,596     11,168
                                     Borrowings                                     617       981      626      426        426
                                     Unsecured Loans                              1,970     3,072    2,277    1,315      1,315
                                     Deferred Tax Liability                          57         0        0        0          0
                                     Source of Funds                              6,994     9,315   10,140   11,337     12,909
                                     Gross Block                                  3,516     4,607    4,607    4,607      4,607
                                     Less: Acc. Depreciation                      1,797     2,250    2,583    2,936      3,289
                                     Net Block                                    1,720     2,357    2,023    1,670      1,317
                                     Capital WIP                                    546       647    2,147    4,147      6,147
                                     Net Fixed Assets                             2,266     3,004    4,170    5,817      7,464
                                     Intangible Assets                               95       211      170      130         89
                                     Investments                                  4,215     5,786    5,786    5,786      5,786
                                     Cash                                           861     1,574    1,056      524        437
                                     Trade Receivables                            1,005     1,044    1,706    1,909      2,181
                                     Loans & Advances                               692     1,383    2,192    2,453      2,803
                                     Inventory                                    1,084     1,061    1,645    1,804      2,069
                                     Total Current Asset                          3,644     5,063    6,600    6,691      7,491
                                     Current Liab. & Prov.                        3,240     4,798    6,636    7,136      7,971
                                     Net Current Asset                              404       265      -36     -444       -480
                                     P&L Account                                     14        49       49       49         49
                                     Application of Funds                         6,994     9,315   10,140   11,337     12,909
                                     Source: Company, ICICIdirect.com Research




 ICICIdirect.com | Equity Research
                                                                                                                       Page 20
Mahindra & Mahindra(MAHMAH)




                                     Exhibit 35: Cash Flow statement
                                     Rs Crore                                      FY08      FY09    FY10E     FY11E      FY12E
                                     Net Profit before Tax                         1,407     1,036    2,699     2,924      3,287
                                     Other Non Cash Exp                                0         0        0         0          0
                                     Depreciation                                    239       292      374       393        393
                                     Direct Tax Paid                                 303       200      744       864        972
                                     Other Non Cash Inc                               21        39      126       116        131
                                     Other Items                                     -85      -222      -73      -101       -105
                                     CF before change in WC                        1,236       866    2,130     2,236      2,473
                                     Inc./Dec. In WC                                -730      -425     -218      -123        -52
                                     CF from Operations                              505       441    1,912     2,113      2,421
                                     Pur. of Fix Assets                             -692    -1,338   -1,500    -2,000     -2,000
                                     Pur. of Inv                                  -1,978    -1,571        0         0          0
                                     CF from Investing                            -2,476    -2,550   -1,101    -1,553     -1,555
                                     Inc./(Dec.) in Debt                             951     1,466   -1,150    -1,162          0
                                     Inc./(Dec.) in Net Worth                         29         4      700       962          0
                                     Others                                         -409      -442     -880      -892       -953
                                     CF from Financing                               571     1,027   -1,330    -1,092       -953
                                     Opening Cash Balance                          1,326       861    1,574     1,056        524
                                     Closing Cash Balance                            861     1,574    1,056       524        437

                                      Y-o-Y Growth (%)                             FY08      FY09     FY10E     FY11E     FY12E
                                     Net Sales                                     16.7       15.3     41.8      18.1      13.3
                                     EBITDA                                        21.4      -20.0    154.8      11.4      11.1
                                     Adj. Net Profit                                 3.3     -21.4    125.3       5.4      12.4
                                     Cash EPS                                       2.7      -26.8     99.7       1.7      10.4
                                     Net Worth                                     22.4       21.0     37.5      32.6      16.4
                                     Source: Company, ICICIdirect.com Research




                                     Exhibit 36: Key Ratios
                                                                                                                             (%)
                                                                                   FY08      FY09    FY10E     FY11E      FY12E
                                     Raw Material                                   71.5      73.3     67.1      67.4       67.7
                                     Employee Expenditure                            8.0       8.1      7.2       7.5         7.5
                                     Effective Tax Rate                             21.6      19.3     27.6      29.6       29.6

                                     Profitability Ratios (%)
                                     EBITDA Margin                                 12.6        8.6     15.2      14.4       14.2
                                     PAT Margin                                    10.2        6.6     10.7       9.6        9.5

                                     Per Share Data (Rs)
                                     Revenue per share                             474.8     469.0     640.7     721.1     817.0
                                     EV per share                                1,361.1   1,212.1   1,150.7   1,089.5   1,092.4
                                     Book Value                                    178.4     188.0     250.4     320.5     373.1
                                     Cash per share                                 35.4      56.4      36.6      17.5      14.6
                                     EPS                                            45.4      30.0      67.7      68.9      77.4
                                     Cash EPS                                       55.2      40.4      80.7      82.0      90.6
                                     DPS                                            11.6      10.0      21.3      20.0      22.5
                                     Source: Company, ICICIdirect.com Research




 ICICIdirect.com | Equity Research
                                                                                                                         Page 21
Mahindra & Mahindra(MAHMAH)




                                     Exhibit 37: Key Ratios
                                                                                                                             (%)
                                     Return Ratios                               FY08      FY09    FY10E     FY11E        FY12E
                                     RoNW                                         27.9      17.4     31.3      24.5         22.3
                                     ROCE                                         18.7       9.9     24.8      25.2         25.2
                                     ROIC                                         14.3      11.3      6.0      12.6         12.3

                                     Financial Health Ratio
                                     Operating CF (Rs Cr)                          505      441     1,912     2,113        2,421
                                     FCF (Rs Cr)                                  -359     -870       321       113          421
                                     Cap. Emp. (Rs Cr)                           6,924    9,302    10,127    11,325       12,896
                                     Debt to Equity (x)                             0.6      0.8       0.4       0.2          0.2
                                     Debt to Cap. Emp. (x)                         0.4       0.4       0.3       0.2          0.1
                                     Interest Coverage (x)                        12.9       6.0     12.0      11.8         14.6
                                     Debt to EBITDA (x)                             1.9      3.7       1.0       0.6          0.5

                                     DuPont Ratio Analysis
                                     PAT/PBT                                      78.4     80.7      72.4      70.4         70.4
                                     PBT/EBIT                                    124.7    129.4     112.0     108.0        107.7
                                     EBIT/Net Sales                               10.4      6.3      13.1      12.6         12.5
                                     Net Sales/Total Asset                       177.1    155.1     188.6     200.0        200.7
                                     Total Asset/NW                                1.6      1.8       1.4       1.2          1.2
                                     Source: Company, ICICIdirect.com Research




                                     Exhibit 38: Key Ratios
                                                                                                                        (x times)
                                     Working Capital                             FY08      FY09    FY10E     FY11E         FY12E
                                     Working Cap./Sales (%)                        3.5       2.0     -0.2      -2.1           -2.0
                                     Inventory turnover                           33.1      30.9     26.9      29.3          29.1
                                     Debtor turnover                              28.8      29.6     27.4      30.7          30.7
                                     Creditor turnover                            67.0      79.2     84.7      92.2          91.4
                                     Current Ratio                                 1.1       1.1      1.0       0.9            0.9

                                                                                                                       (Rs crore)
                                     FCF Calculation                             FY08      FY09    FY10E     FY11E         FY12E
                                     EBITDA                                      1,367     1,093    2,784     3,100         3,445
                                     Less: Tax                                     303       200      744       864           972
                                     NOPLAT                                      1,063       893    2,040     2,236         2,473
                                     Capex                                        -692    -1,338   -1,500    -2,000        -2,000
                                     Change in working cap.                       -730      -425     -218      -123           -52
                                     FCF                                          -359      -870      321       113           421



                                                                                                                        (x times)
                                     Valuation                                   FY08      FY09    FY10E     FY11E         FY12E
                                     PE (x)                                       24.0      36.4     16.1      15.8          14.1
                                     EV/EBITDA (x)                                23.5      30.1     11.6      10.2           9.2
                                     EV/Sales (x)                                  2.8       2.5      1.7       1.5           1.3
                                     Dividend Yield (%)                            1.1       0.9      2.0       1.8           2.1
                                     Price/BV (x)                                  6.1       5.8      4.4       3.4           2.9
                                     Source: Company, ICICIdirect.com Research




 ICICIdirect.com | Equity Research
                                                                                                                        Page 22
Mahindra & Mahindra(MAHMAH)




                                     Appendix - Key Subsidiaries
                                     Tech Mahindra
                                     Tech Mahindra provides IT solutions to the global telecom industry.
                                     Owned by M&M (44% stake) and British Telecommunications Plc (31%),
                                     the company provides services spanning across Business Support
                                     Systems, Operating Support Systems, Network Design and Engineering,
                                     Security Consulting, Testing, etc. Tech Mahindra is primarily an export-
                                     focused company with majority of its revenues coming from software
                                     sales in overseas markets. During FY09, nearly 93% of revenues came
                                     from the sales in Europe and the US.


                                     Result analysis
                                     In Apr-Dec 2009, Tech Mahindra’s income from operations grew
                                     marginally (+2.2% YoY to Rs 3444 crore) due to the slow growth
                                     witnessed in the key markets of the US and Europe, which were severely
                                     impacted by the global financial crisis. EBITDA margins contracted by 310
                                     basis points to 24.8% as a result of higher personnel costs due to
                                     increase in wages and lower utilization rates. Furthermore, PAT was
                                     significantly lower by 39.6% to Rs 473 crore due to higher interest costs
                                     and the write-off of processing charges related to debt restructuring.


                                     Exhibit 39: Financials – Tech Mahindra (in Rs crore)
                                                                          FY07     FY08     FY09    YTD FY09   YTD FY10
                                     Income from Operations               2,937    3,871    4,427      3,368       3,444
                                     YoY Change (%)                                 31.8     14.4                    2.2
                                     EBITDA                                744      930     1,245        953        855
                                     EBITDA Margin (%)                     25.4     24.7     27.9       27.9        24.8
                                     EBIT                                  693      851     1,135        872        761
                                     PAT                                    88      329     1,015        784        473
                                     Source: Company



                                     Mahindra and Mahindra Financial Services (MMFS)
                                     MMFS is a non-banking finance company focusing on the credit
                                     requirements of rural and semi-urban areas for purchasing UVs, tractors
                                     and cars. Although MMFS primarily focuses on financing UVs and tractors
                                     produced by M&M, it has expanded its activities to finance vehicles
                                     produced by other companies. The company operates a large network of
                                     branches (442), with a pan-India presence. Additionally, MMFS offers
                                     other services such as mutual fund distribution, insurance broking,
                                     housing finance and fixed deposit schemes. M&M owns nearly 68% stake
                                     in MMFS.

                                     Result analysis
                                     In Apr-Dec 2009, MMFS’s net interest income grew by 17.6% to Rs 710
                                     crore driven by higher loans and deposits (+11.2% to Rs 7922 crore) and
                                     lower interest expenses (down 1.4% to Rs 378 crore). PAT nearly doubled
                                     to Rs 212 crore (+93%) fuelled by increased recovery (lower NPA ratio)
                                     and lower overhead charges (implementation of the new mobile
                                     technology solutions platform).




 ICICIdirect.com | Equity Research
                                                                                                                Page 23
Mahindra & Mahindra(MAHMAH)




                                     Exhibit 40: Financials – Mahindra and Mahindra Financial Services (Rs Crore)
                                                                         FY07     FY08     FY09          YTD FY09   YTD FY10
                                     Net Interest Income                  505       750      854              605        711
                                     % change (YoY)                                48.5     13.9                         17.6
                                     PBT                                  207       279      334              165        304
                                     PAT                                  135       181      220              212        110


                                     Loans and Advances                  5,866    6,647    6,871            7,121       7,922
                                     Gross NPAs                           358       557      691              808        799
                                     Gross NPA (%)                         6.1      8.4     10.1             11.3        10.1
                                     NPA Provision                        203       352      497              523        599
                                     NPA Provision (%)                    56.8     63.2     71.9             64.6        74.9
                                     Source: Company




                                     Mahindra Lifespace Developers
                                     Mahindra Lifespace Developers is a real estate developer operating in the
                                     residential and integrated infrastructure segments. By FY09, the company
                                     had completed the first phase of three of its major residential projects in
                                     Chennai, Mumbai and Pune, in addition to its integrated infrastructure
                                     project in Chennai. M&M owns nearly 51% stake in Mahindra Lifespace
                                     Developers.

                                     Result analysis
                                     In Apr-Dec 2009, income from operations grew by 64% YoY to Rs 220
                                     crore driven by the successful completion of the Mahindra World City
                                     project (Chennai) and Mahindra Aura residential project (Gurgaon).
                                     EBITDA margins expanded to 25.3% (+81% YoY to Rs 56 crore), fuelled
                                     by lower operating expenses. Consequently, PAT grew by 73% to Rs 56
                                     crore.

                                     Exhibit 41: Financials – Mahindra Lifespace Developers (Rs Crore)
                                                                         FY07     FY08     FY09          YTD FY09   YTD FY10
                                     Income from Operations               216       231      165              134        220
                                     YoY Change (%)                                 6.8     -28.4                        63.7
                                     EBITDA                                22        63       18               19         56
                                     EBITDA Margin (%)                    10.3     27.4     11.1             14.0        25.3
                                     EBIT                                  20        59       25               17         54
                                     PAT                                   18        66       46               32         56
                                     Source: Company




                                     Mahindra Ugine Steel (MUSCO)
                                     M&M owns nearly 68% stake in MUSCO, a producer of alloy steel and
                                     special steel products. MUSCO is a supplier to the automotive,
                                     engineering, bearing and other industries. The company’s steel plant is
                                     located at Khopoli (near Mumbai), with an installed production capacity of
                                     180,000 tons per annum. It also has three stamping plants, catering to the
                                     automobile manufacturing industry.




 ICICIdirect.com | Equity Research
                                                                                                                     Page 24
Mahindra & Mahindra(MAHMAH)



                                     Result analysis
                                     In Apr-Dec 2009, MUSCO’s total operating income declined by 12% to Rs.
                                     770 crore as a result of lower sales of the steel division (decreased
                                     construction activity from the economic slowdown). However, strong
                                     growth of automobile demand in India fuelled higher sales of the
                                     stampings division (+28% to Rs 323 crore). EBITDA margins improved
                                     significantly (6.8% vs 3.1% in Apr-Dec 2008) due to cost cutting initiatives
                                     by the company and process re-engineering.

                                     Exhibit 42: Financials – Mahindra Ugine Steel (Rs Crore)
                                                                          FY07     FY08      FY09      YTD FY09   YTD FY10
                                     Total Operating Income                717      922      1,073          877        770
                                     YoY Change (%)                                 28.6        16.4                  -12.2
                                     EBITDA                                 95       97          31          27         52
                                     EBITDA Margin (%)                    13.3      10.5         2.8        3.1         6.8
                                     EBIT                                   78       70           6           9         29
                                     PAT                                    45       29          -19        -12          -1
                                     Source: Company




                                     Mahindra Forgings
                                     Mahindra Forgings, the largest supplier of forged components to the
                                     domestic automotive industry with a 40% market share, manufactures
                                     crankshafts, steering knuckles, axle beams, etc. With a domestic installed
                                     production capacity of 42,000 MT, the company operates plants in India,
                                     Germany and the UK. M&M owns nearly 61% stake in Mahindra Forgings.

                                     Result analysis
                                     In Apr-Dec 2009, Mahindra Forgings total operating income declined by
                                     almost 50% to Rs 943 crore as a result of the subdued performance of the
                                     auto sector in Europe. As a result of lower sales volume, the company
                                     incurred negative EBITDA of Rs 9 crore (vs positive EBITDA of RS 149
                                     crore in Apr-Dec 2008).

                                     Exhibit 43: Financials – Mahindra Forgings (Rs Crore)
                                                                                   FY08      FY09      YTD FY09   YTD FY10
                                     Total Operating Income                        2,320     2,243        1,881        943
                                     YoY Change (%)                                             -3.3                  -49.9
                                     EBITDA                                         199         127         149          -9
                                     EBITDA Margin (%)                               8.6         5.7        7.6        -1.0
                                     PAT                                             16         -117        -11        -184
                                     Source: Company



                                     Mahindra Holidays and Resorts (MHRIL)
                                     MHRIL operates a timeshare vacation business with more than 100,000
                                     long-term holiday members. Its service offering include the flagship
                                     service Club Mahindra Holidays, in addition to other vacation ownership
                                     services such as Zest Breaks, Club Mahindra Fundays, Mahindra
                                     HomeStays and Mahindra.Travel. MHRIL operates 30 resorts in India and
                                     Thailand. During FY09, MHRIL was listed on the stock exchange following
                                     its IPO, raising Rs 177 crore to fund its capex plans. M&M owns nearly
                                     83% stake in MHRIL.




 ICICIdirect.com | Equity Research
                                                                                                                   Page 25
Mahindra & Mahindra(MAHMAH)



                                     Result analysis
                                     In Apr-Dec 2009, income from operations grew by 18% to Rs 380 crore
                                     driven by the addition of 16,285 new members. EBITDA margins
                                     expanded significantly (37.7% vs 30.5% in Apr-Dec 2008) contributed by
                                     lower sales and marketing expenses (down 4%). Consequently, PAT grew
                                     by almost 60% to Rs 86 crore.

                                     Exhibit 44: Financials – Mahindra Holidays and Resorts (Rs Crore)
                                                                         FY07      FY08     FY09         YTD FY09   YTD FY10
                                     Income from Operations                241      377      442              322        380
                                     YoY Change (%)                                56.3     17.2                         18.0
                                     EBITDA                                 79      144      152               98        143
                                     EBITDA Margin (%)                    32.9     38.2      34.4            30.5        37.7
                                     EBIT                                   70      133      135               87        129
                                     PAT                                    42       84       80               54         86
                                     Source: Company




                                     Mahindra Satyam
                                     Mahindra Satyam, formerly Satyam Computers Services, is a global
                                     business consulting and IT services company catering to the several
                                     sectors. The company was acquired by the M&M group in FY09 following
                                     the accounting scandal and Maytas acquisition. Tech Mahindra, through
                                     its subsidiary Venturebay Consultants, owns nearly 44% stake in
                                     Mahindra Satyam.




 ICICIdirect.com | Equity Research
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     Mahindra & Mahindra(MAHMAH)




RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs current market price and then categorises them
as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is 2 years unless specified and the
notional target price is defined as the analysts' valuation for a stock.
Strong Buy: 20% or more;
Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

                                  Pankaj Pandey                                          Head – Research                                       pankaj.pandey@icicisecurities.com

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