We reiterate our 'neutral' rating on Mahindra & Mahindra Ltd with a target price of R1,200 per share. We met Pawan Goenka at an analyst meet. Goenka shared his vision on 1) new launches in the UV/SUV segment, 2) growth outlook for the industry in automotive and farm equipment segments and 3) update on other automotive businesses (two-wheeler, truck and Ssangyong Motors).
We believe M&Mís market share loss in the UV/SUV segment is likely to stem while tractor volume growth will remain sedate (at 8-10% y-o-y in FY15).
Company plans to focus on the mini SUV segment and will launch two new SUVs in FY16. The pipeline for product launches in FY15 is pretty dry with two refreshes (Scorpio and likely Bolero) and Quanto AMT. We reckon FY16/17 will be transition years for Mahindra as it will launch six new engine platforms (1-litre petrol, 1.2-litre petrol/diesel, 1.5-litre diesel and 1.6-litre petrol/diesel engines).
The management expects UV/SUV industry volumes to grow at 8-10% y-o-y in FY15. M&M expects its market share losses to stem and likely pick up in FY16 with the new launches. We reckon the company will populate the mini SUV segment, which is likely to get crowded over the next two years that could potentially lead to lower margin profile for the automotive business.
Kotak Institutional Equities