Mahindra and Mahindra

Consequent to the expectation of a good rabi crop and strong performance (volumes) in December 2009 quarter, the brokerage has upgraded its volumes estimates for M&M by 16 per cent for 2009-10 and 17 per cent for 2010-11. Within categories, tractors and three wheelers (including Gio) have seen strong volumes upgrades. Despite strong volume upgrades and hence operating leverage, it expects 2010-11 EBIDTA margins to decline by 40 basis points to 13.3 per cent vis-à-vis earlier estimates due to higher raw material cost pressures. However, standalone EPS has been upgraded by 16 per cent and 12 per cent to Rs 65.6 and Rs 69 for 2009-10 and 2010-11, respectively.

M&M’s standalone business is valued at 9 times EV/EBIDTA (10 per cent discount to Maruti). The value of the standalone business is upgraded by 11 per cent to Rs 937 per share. Besides, value of listed subsidiaries has also been upgraded by 18 per cent to Rs 328 per share. As a result, M&M’s target price had been upgraded by 13 per cent to Rs 1,265.