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Will M&M's smooth UV ride continue?

Source : BUSINESS_STANDARD
Last Updated: Fri, Dec 07, 2012 07:42 hrs

pBuoyed by continuing good performance in the utility vehicles UV space which roughly forms almost 60 per cent of its standalone revenues the Mahindra and Mahindra M&M stock touched record highs Rs 96445 on Monday The scrip has been one of the star performers in the auto space this year giving investors a 40 per cent return However the pace of growth in UV volumes is likely to come down going ahead which could cap upsides for the stockppSay Jatin Chawla and Akshay Saxena of Credit Suisse Securities Research &ldquoM&M has enjoyed a super-normal 25 per cent plus volume growth in UVs in the past few years driven by a very favourable product cycle and an increasing trend towards UVs Going forward with no significant launches by the company and competition in the UV space intensifying we expect company&rsquos UV growth to significantly slow down&rdquoppWhile most analysts believe that there will be a dent in the company&rsquos share in the UV space the company continues to be a on a strong wicket as of now Says an analyst with a foreign brokerage house &ldquoGiven their presence across the UV value chain M&M&rsquos position is much stronger than competition whose product portfolio is limited to one-two models at best&rdquo The issue thus will be the pace of growth &ldquoDon&rsquot expect M&M to grow as fast as they did in the past The UV business will probably grow at 12-15 per cent going ahead&rdquo says the analystbr  table cellpadding2 width300 tbody tr styleheight 15pt height20 td styleheight 15pt width290 bgcoloreeeeda colspan3 height20font faceTahoma size3strongSLOWER GROWTHstrongfonttd tr tr styleheight 15pt height20 td styleheight 15pt width119 bgcolor929373 height20font faceTahoma colorffffff size2strongIn Rs crorestrongfonttd td classxl63 alignright width77 bgcolor929373font faceTahoma colorffffff size2strongFY12strongfonttd td classxl63 alignright width78 bgcolor929373font faceTahoma colorffffff size2strongFY13Estrongfonttd tr tr styleheight 15pt height20 td styleheight 15pt width119 bgcoloreeeeda height20font faceTahoma size2strongNet salesstrongfonttd td classxl63 alignright width77 bgcoloreeeedafont faceTahoma size2strong31853strongfonttd td classxl63 alignright width78 bgcoloreeeedafont faceTahoma size2strong39720strongfonttd tr tr styleheight 15pt height20 td styleheight 15pt width119 bgcoloreeeeda height20font faceTahoma size2 change y-o-yfonttd td alignright width77 bgcoloreeeedafont faceTahoma size2356fonttd td alignright width78 bgcoloreeeedafont faceTahoma size2247fonttd tr tr styleheight 15pt height20 td styleheight 15pt width119 bgcoloreeeeda height20font faceTahoma size2strongEbitdastrongfonttd td classxl63 alignright width77 bgcoloreeeedafont faceTahoma size2strong3770strongfonttd td classxl63 alignright width78 bgcoloreeeedafont faceTahoma size2strong4482strongfonttd tr tr styleheight 15pt height20 td styleheight 15pt width119 bgcoloreeeeda height20font faceTahoma size2 change y-o-yfonttd td alignright width77 bgcoloreeeedafont faceTahoma size291fonttd td alignright width78 bgcoloreeeedafont faceTahoma size2189fonttd tr tr styleheight 15pt height20 td styleheight 15pt width119 bgcoloreeeeda height20font faceTahoma size2Ebitda fonttd td alignright width77 bgcoloreeeedafont faceTahoma size2118fonttd td alignright width78 bgcoloreeeedafont faceTahoma size2113fonttd tr tr styleheight 15pt height20 td styleheight 15pt width119 bgcoloreeeeda height20font faceTahoma size2strongNet profitspan stylemso-spacerun yes spanstrongfonttd td classxl63 alignright width77 bgcoloreeeedafont faceTahoma size2strong2878strongfonttd td classxl63 alignright width78 bgcoloreeeedafont faceTahoma size2strong3019strongfonttd tr tr styleheight 15pt height20 td styleheight 15pt width119 bgcoloreeeeda height20font faceTahoma size2 change y-o-yfonttd td alignright width77 bgcoloreeeedafont faceTahoma size281fonttd td alignright width78 bgcoloreeeedafont faceTahoma size249fonttd tr tr styleheight 15pt height20 td styleheight 15pt width290 bgcoloreeeeda colspan3font faceTahoma size1Standalone financials                             Source Credit Suissefonttd tr tbodytableppThe company however expects to maintain the growth streak Says Pravin Shah chief executive automotive division M&M &ldquoEach of the brands in our portfolio is well differentiated with a distinctive proposition Hence each brand has done well and we have outperformed most of the industry We expect them to continue the excellent performance&rdquoppOn the valuations front while most analysts have a positive stance on the stock the sharp run-up in the recent past has led to a couple of downgrades recently Say Hitesh Goel and Vinay Kumar of Kotak Institutional Equities Research &ldquoWe downgrade the stock to add from buy earlier as we believe it is fairly valued after a sharp outperformance versus the Sensex We think risk-reward hangs in balance&rdquo Rerating according to them is restricted due to limited scope of earnings surprises risk associated with tax on diesel passenger vehicles and its reported bid for Aston Martin which could raise concerns about capital allocation of the group Sum of parts valuation pegs the target price for the stock on one-year forward multiples between Rs 858 and Rs 1000ppstrong Super show hurdles aheadstrongbr The UV segment which contributes about 45 per cent of its overall auto sales volumes grew 22 per cent last year and is expected to top 26 per cent in FY13 Aided by new product launches and sales in the festive season the company registered 38 per cent year-on-year increase in November while year-to-date fiscal volumes were up 32 per cent year-on-year In addition to the company&rsquos product line-up and an excellent distribution network one of the reasons for the sales uptick has been the preference for UVs and diesel vehicles From 14 per cent in FY11 the share of UVs in passenger vehicle sales for the industry has crossed the 20 per cent mark This believe Kotak Securities analysts is not sustainableppSecondly given the rapid growth multinational majors have also introduced a number of offerings in this space In the current year some of the launches in the MUVSUV space include Ertiga Maruti Duster Renault Evalia Nissan and Safari Storme Tata Motors with the first two grossing 5000-7000 units per month since launch In 2013 while Ford is likely to launch its Ecosport GM is aiming to introduce its MUV Enjoy Given that the Ecosport is sub-four metres thus getting taxed at 10 per cent versus 24 per cent for the Duster it could be priced lower than Duster Credit Suisse analysts expect the Ecosport to do better given lower pricing than Duster and superior distribution of Ford as compared to Renault The two vehicles Duster and Ecosport could prove a formidable challenge to M&M they addppWhile competitive intensity could increase M&M&rsquos Shah says that as of now the company has not been impacted by any of the new launches While the company refused to divulge product launch details analysts expect the next launch after its recent small MUV Quanto to be a new Scorpio in 2014ppstrongTractors Slow startstrongbr While the UV segment has done well poor demand especially in the southern region has played spoilsport with its farm equipment volumes 30 per cent of standalone revenues tractor sales down four per cent year-on-year for the fiscal year-to-date Brics Securities&rsquo Umesh Karne and Manashwi Banerjee expect tractor makers to report a three per cent fall in FY13 sales due to lower rise in MSPs and high finance cost Tractor makers including M&M believe the second half of the fiscal will be better than the first as delayed rains will lead to a better rabi cropp


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