Our positive view on MM is based on a strong recovery inTractors, LCVs recovering in 2HFY21 and positive development on capital allocation.We were not banking on any positive development in its SUVbusiness, but have taken stock of MM’s SUV and LCV business in this note. Both businesses have so far positively surprised us.
The company is reorienting its SUV business to maintain its DNA and brand position and garner market share. Thar’s success shows that it is on the right track. The MM and Ford JV got delayed due to the COVID-19 pandemic.
However, the product pipeline reflects some promising upgrades in its UV portfolio. LCV segment has seen a fast recovery despite steep BS6 price hikes. As expected, its LCV market share has increased ~500bp YoY to 47% in 1HFY21, driven by lesser BS6 price hikes than SCVs and due to supply issues with peers. The LCV industry should continue to benefit from the increasing emergence of the ‘Hub and Spoke’ model. While MM’s core business would recover faster, the focus on tightening capital allocation could act as a rerating catalyst. Hence, we see twin levers of EPS growth and re-rating. Maintain Buy with a TP of INR830/share (Dec’22E SoTP), implying a core P/E of ~15x at our TP.
The upgraded Thar has got off to a good start with over 78,000 inquiries at the dealer level and over 20,000 bookings within a month of launch. This compares with total sales of ~23,000 units for the old Thar during FY16-20. Unlike the old Thar (niche off-roading SUV), the new Thar has emerged as a mainstream vehicle while maintaining its off-roading vehicle image. Over 55% of Thar customers are buying the Mahindra brand for the first time, with automatic forming 44% of bookings, implying a higher city usage.AllThar variants were launched upfront and this seems to have worked well unlike in the past. Considering the strong demand for the mid and premium variants, the company has currently stopped accepting bookings for the entry level AX variant.
