The Hindu Business Line : Mahindra & Mahindra: Buy

Investors with a long-term perspective can consider investing in the Mahindra & Mahindra (M&M) stock at the current price of Rs 620. The stock has moved in tandem with the market and has gone up by about 8 per cent over the last month. But despite the increase, valuations do not look stretched. At the current price, M&M's stock discounts its trailing four-quarter earnings by about 16 times. Considering its low gearing, strong industry position, promising growth prospects in the commercial vehicles and passenger vehicles segments, and potential returns from the subsidiaries that are to be listed, the stock is, in our view, reasonably priced and holds meaningful upside potential.

M&M is the market leader in the utility vehicles segment and while it has in place a roadmap for continued dominance in this segment (including new common rail engines and variants), it also has a well-defined plan for strong debuts in product segments in which it has no presence currently. For this purpose, M&M has entered into joint ventures with global giants such as Renault for passenger cars and with International Truck and Engine Corporation for the manufacture of light and medium commercial vehicles and buses. In addition, M&M has set up new marketing joint ventures in South Africa (where its Scorpio pick-up has had a promising start) and in Western Europe.

In terms of product strategies that should pay off for M&M in the medium term. The most awaited development will be the launch of the Renault Logan sedan in 2007. The car could be offered with both petrol and diesel engine options and will mark M&M's foray into the passenger car segment. Another benefit from this JV could be the possibility of sourcing petrol engine technology for the Scorpio, an option that could boost sales of this MUV in the international markets.

M&M is also planning to launch a new family van/multi-purpose vehicle on a whole new platform. The project, currently called Ingenio, could enable the company to take on the Toyota Innova and the Chevrolet Tavera in both the individual buyer and taxi segments.

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