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Buy Mahindra & Mahindra, target Rs 1,000: Kotak Securities

Buy Mahindra & Mahindra at a price target of Rs 1,000.|
Updated: Mar 07, 2019, 11.46 AM IST
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Mahindra & Mahindra
The current market price of Mahindra & Mahindra is Rs 669.55.
Kotak Securities has a buy call on Mahindra & Mahindra with a target price of Rs 1,000.

The current market price of Mahindra & Mahindra is Rs 669.55.

Time period given by the brokerage is one year when Mahindra & Mahindra price can reach the defined target.

Investment rationale by the brokerage: The company pegged the tractor industry growth rate at 10-12 per cent YoY in FY2019E, which implies flattish volume growth in 4QFY19. Dealer inventory levels for the company in the tractor segment are at 4-5 weeks.

The company expects single-digit growth for the tractor industry in FY2020 given that the past three years have been pretty strong for the industry.

Festive season dented sales in the passenger vehicle industry, which led to higher inventory across the industry. Dealer inventory levels are 4-5 weeks, down from 5-6 weeks earlier. Given the weak consumer sentiment, the company expects the PV industry to grow by 5 per cent in FY2019.

The company expects Marazzo, Alturas G4 and XUV300 to increase their UV volumes by 9,000 units per month, which might be slightly impacted by some cannibalization across the models. The company will launch a new range of gasoline and CNG engines over the next two years, which will increase its addressable market segment.

The company highlighted that the cost of diesel engines will increase by less than Rs100,000 post BS-VI norms implementation. The company mentioned that first BS-VI compliant vehicle will be ready by mid-December 2019. By March 2020, all but one model will be BS-VI compliant.

M&M is quite positive on electric vehicles and is looking to expand its manufacturing capacity to 70,000 units by March 2020E. The company will target the fleet segment (already tied up with Ola for electric car fleet in Ola) and will also launch premium electric vehicles over the next three years

Reasonable valuations, single-digit growth expectations in tractor demand for FY2020, potential recovery in the SUV segment due to new launches and efforts to reduce losses in subsidiaries drive our BUY rating.

We expect overall volume to grow at a CAGR of 7 per cent over FY19-21E. We expect M&M’s EPS to grow by 13 per cent CAGR over FY19-21E. SoTP-based fair value unchanged at Rs 1,000 based on 15X December 2020E EPS.

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Disclaimer: This recommendation is analyst's own and does not represent those of & Please consult your financial advisor before taking any position in the stock/s mentioned.

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