Reliance Securities

M&M (Buy)

CMP: ₹671.9

Target: ₹755

We expect M&M to continue gaining market shares in UVs (utility vehicles) and tractors on the back of strong product portfolio. The Union Government’s strong rural thrust coupled with the expected bounce back in rural economy post monsoon would be key positive.

As M&M’s key product portfolio continues to be rural-focussed, it would continue enjoy the benefit of improving rural affordability, in our view. We believe that new XUV300 would drive M&M’s overall volume and profitability, going forward. Its success is likely to compensate for slowdown in other segments. Moreover, the Company plans to focus on new technology and EV (electric vehicle) platform, going forward.

Looking ahead, we expect M&M’s volume to clock 6 per cent CAGR over FY19-FY21E led by rural demand for PVs (passenger vehicles) and new launches. Considering expected improvement in rural demand, and attractive valuation post recent price correction, we reiterate our ‘buy’ recommendation on the stock with an SOTP based target price of ₹755 (valuing M&M+MVML at 6.5x FY21E EBIDTA at ₹502 and subsidiary at ₹253 post-30 per cent discount to market capitalisation).