Monday, April 21, 2008

Mahindra & Mahindra

Web site:

http://www.mahindra.com/

Annual Reports at:

http://www.mahindra.com/investorsrelations/AnnualReport.asp

Shareholding pattern (as of 31 Dec 2007):

1. Promotor and Promotor Group : 22.57%
2. Insurance Companies : 19.16%
3. FIIs : 26.30%
4. Mutual Funds : 6.18%
5. Corporate Bodies : 6.25%
6. Individual Share Holders : 10.82%

A major part of the Company is owned by very strong institutional investor base. Reflects the confidence reposed in the Company by financial power houses!

Current Valuations:

1. Trailing 12 months EPS (as of quarter ending 31 Dec 2007): Rs.50.38/-
2. At today's CMP of Rs.625/-, that's at a P/E of 12.04 (trailing 12M).


ROE:27  ROCE:20  RONW:33

Not a very rich valuation (for its kind of a business). Infact, it may be an attractive level!

Core business

A strong, well known player in the automotive sector - be it in passenger, utility, and light commercial vehicles' segments. The Company has shown a tremendous flexibility in modifying its product range in response to the dynamic automotive sector.

Scorpio has been a very successful product clocking record sales since its launch. Joint venture with Nissan yielded Logan, which is also becoming a very fast selling Sedan on Indian roads


Assets & Investments (other than core business)

M & M holds the following assets / runs the joint ventures with:

(a) a stake of 65% in the unlisted entity Systech;
(b) a stake of 50.7% in Mahindra Ugine (a listed auto components' maker)
(c) a stake of 30.6% in Mahindra Composites (a listed auto components' maker)
(d) a stake of 47.1% in Mahindra Forgings (a listed auto components' maker)
(e) a stake of 51% in Mahindra Renault (unlisted)
(f) a stake of 51% in Mahindra International (unlisted)
(g) a stake of 80% in Mahindra China (unlisted)
(h) a stake of 100% in Mahindra USA (unlisted)
(i) a stake of 100% in Mahindra Holiday Resorts (unlisted)
(j) a stake of 100% in Mahindra Intertrade (unlisted)
(k) a stake of 67.7% in the listed entity Mahindra Financial Services (retail financial services)
(l) a stake of 50% in Mahindra Lifespaces (real estate and construction)
(m) a stake of 44.4% in Tech Mahindra (Software Services Provisioning)
(n) a stake of 63.3% in Punjab Tractors

and ofcourse, decent cash reserves


Salient Points

Positives

1. A Company running very highly diversified set of businesses through subsidiaries (and joint ventures). A good cushion to the EPS across market cycles.

2. Run by very competent, highly respected, ethical management.

3. Potential value unlocking in the share in the event of possible demergers of individual businesses, or stake sales through IPOs.

4. Higher utilization of tractors (and farm mechanization) - gives direct visibility of increased tractor sales.

Negatives

1. The share of M&M tends to be quoted at some amount of a holding discount to its true value.

2. Interest rate cycles can turn fortunes for the core business of M&M. However, the allied businesses (and joint venture investments) should be in a position to cushion the overall EPS.

3. Rise in input material prices, labour costs, and pricing pressures due to increased competition in an inflationary environment - can show negative impact on the EPS.


Acquisition of Metalcastello (Italian Gear Manufacturer)

M&M, in consortium with ICICI Venture Funds Management, has signed a definitive agreement to acquire a 100% stake in Metalcastello, a leading Italian gear manufacturer. This will be materialized subject to regulatory approval in Italy.

http://in.ibtimes.com/articles/20080404/mahindra-icici-venture-metalcastello-gear.htm

Underwater Defence Systems JV (with WASS, a subsidiary of Finmeccanica group)

http://in.reuters.com/article/businessNews/idINIndia-32004220080218

Landmine Protected Vehicle development JV (with BAE Systems)

http://www.indiaprwire.com/pressrelease/defense/200802127306.htm

New Product Launch in Q4FY09

A new SUV (targeted to be far superior to Scorpio in terms of technology and value offering), named Ingenio is under development, and expected to be launched in Q4FY09.

A right step in deepening M&M's utilility vehicle product portfolio.

http://economictimes.indiatimes.com/News_by_Industry/Mahindra__Mahindra_to_roll_out_Ingenio_by_August/articleshow/2806435.cms


Charts:


M&M


http://img374.imageshack.us/img374/7333/mmrd9.jpg

http://img374.imageshack.us/img374/3148/mm1mc6.jpg

http://img144.imageshack.us/img144/701/mm2za5.png

http://img253.imageshack.us/img253/4243/mm3ik3.png

http://img399.imageshack.us/img399/4215/mm4gd8.png


Strategy


M&M wave 2B is in progress which has a target of 569. But its not an interesting scrip to trade but as an investor I would deploy 40% of my investment at the moment as the scrip is showing strenght on an upmove for a target of 655/687/704

Final SL is 554


We maintain the same levels for 4/28/08 forward


2nd May 2008
M&M targets have been achieved the last target is almost achieved (M&M @ 701) I would cover my position.
Short M&M @ 701 for a target of 652

1 comment:

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