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Centrum Broking
M&M (Buy)
Target: ₹953
CMP: ₹792.10
We believe that demand drivers are intact for the tractor industry even after the second wave of Covid-19 and that M&M will outperform the industry.
We expect the company to regain lost market share in tractors over FY22-23 on the back of improved supply chain and lower opening dealer inventory at the start of FY22. M&M had lost 300 bps market share in FY21 owing to supply issues, which had surfaced in our channel checks as well.
The auto segment should do well on cyclical recovery, new launches (New Thar is already receiving overwhelming response), and improving supply chain. We expect volumes to grow at 26 per cent CAGR in the auto segment and at 7 per cent CAGR in the FES segment over FY21-23.
We value the company on SoTP, with core business (MM+MVML) at its long-term average PER of 16x. We add the value of its listed group entities at CMP after 20 per cent holding company discount. Lastly, we add cash and current investments at book value.
We initiate coverage on MM with a BUY rating and a target price of ₹953. We might have dodged the second-wave bullet due to silent period in farm activities, but the pandemic still poses a risk to our rating.
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