Investment Idea : Mahindra & Mahindra

Core business to drive Growth, Subsidiaries to boost valuation

Company : Mahindra & Mahindra
Sector : Automobiles
CMP : Rs. 730
12 Months Target price : Rs. 1050

Risk : Moderate

About the Company
Mahindra & Mahindra Limited (M&M) is the flagship company of US $ 2.59 billion Mahindra Group, which has a significant presence in key sectors of the Indian economy

M&M has two main operating divisions:
The Automotive Division manufactures utility vehicles, light commercial vehicles and three wheelers.The Company has recently entered into a JV with Renault of France for the manufacture of a mid-sized sedan, the Logan, and with International Truck & Engine Corporation, USA, for manufacture of trucks and buses in India.

The Tractor (Farm Equipment) Division makes agricultural tractors and implements that are used in conjunction with tractors, and has also ventured into manufacturing of industrial engines. The Tractor Division has won the coveted Deming Application Prize 2003, making it the only tractor manufacturing company in the world to secure this prize.

Rural push to drive farm equipment growth
Mahindra is a market leader in the farm equipment segment. M&M has two main tractor manufacturing plants located at Mumbai and Nagpur in Maharashtra. has a strong and extensive dealer network of over 450 dealers for sales and service of tractors and spare parts.

In FY06 the company commanded 29.7% of the market share. The domestic tractor industry registered a healthy growth of 39.9% in the second quarter of F2007 over Q2 last year. The company sold 21,801 tractors in the current quarter as against 17,096 tractors in Q2 F2006. The company’s exports registered a growth of 64.1% while the Engine business clocked a growth of 78% in Q2 FY07.

The Farm sector as a whole is bound to reap huge benefits with the UPA government’s thrust on rural development and prime minister pledge of reforms with human face. Favurable monsoons would also be a boon to the company. With the background set for rural thrust , M&M is all set to make sure that its tractors and farm equipments rule the Indian soils.

Automative Sector: Scorpio runs the show
In FY 2006, the company continued to dominate the utility vehicles segment with the market share of 47.6%. The Scorpio continued its strong performance in the market with a 20% improvement in volumes over Q2 last year. The Bolero variants also witnessed good growth. The Company remained the market leader in the UV segment with a share of 45.7% in the second quarter. The market shares has registered a decline as compared to Fy06 due to competition from Toyota Innova.

In the 4MT LCV segment, the sales of Mahindra vehicles increased by 5.7% to 1,991 against a 4.4% decline in industry sales. The Company had a market share of 19.3 % in the quarter as against 17.44 % in Q2 last year.

In the large 3-wheeler segment, while the industry volumes declined during the quarter by 19.6%, however the company’s volumes declined by only 13.8%.

The Company’s vehicle export saw a strong growth of 51.5% with the Company exporting 2,761 vehicles in Q2 F2007 as compared to 1,822 vehicles exported in Q2 last year. This is the highest ever quarterly vehicle export volume for the Company.

Investment guru is of view that Scorpio would continue to run the show for M&M, while the 3-Wheller segment would make a further dint. However, the silver lining would be company’s major thrust on exports and this would keep the flag high.

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Subsidiaries to boost Valuations
Tech Mahindra –Feather in the Cap
M&M has around 46 % stake in Tech Mahindra. Tech Mahindra has grown rapidly to become the 8th largest software exporter in India. The company stock had a dream run in the last few sessions and analyst are counting heavily on the company reach and expertise in the Telecom arena. The growth of telecom industry will further boost the fortunes of Tech Mahindra and in turn will increase the valuation of its Parent, Mahindra & Mahindra.

M&M Financial Services –Strong Networking
M&M hold around 68% stake in M&M financial services which is the financing arm of M&M. It provides loans to fund purchases of UVs, tractors and cars, with a focus on India’s rural and semi-urban territories. The company boasts of a storng branch network and has a pan India presence. For the half year ended Sep,2006 the company has posted a 40% growth in Net Income while net profits grew by 19%.

Infrastructure – Reaping Dividends
M&M has a presence in Infrastructure sector though its subsidiaries Mahindra Gesco and a host of other subsidiaries. M&M holds 55% in Mahindra gesco. Besides three SEZs in Chennai, Jaipur and Pune, it is developing residential and commercial projects in cities like Mumbai, Pune, Chennai, Faridabad, Bangalore and Delhi.

Investment Guru is of the view that M&M has a sizeable stake in its subsidiary companies and these companies have posted strong results. The outlook for the subsidiaries is also bright and this would further boost the valuation of M&M. The benefits in turns accrues to Mahindra and Mahindra shareholders.

The stock is currently trading at Rs. 730 . At current price, the stock is valued at 19 times its FY06 EPS. However, if we take the current half year performance into account the stock trades at a forward PE of 17. FII's holding in the company share is 36.8%. Investment guru recommends investors to enter the stock with a long term horizon and enjoy the fruits of the success of M&M and its subsidiaries.

Additional Readings & References
Shareholding Pattern

Financial Releases

Stock performance

Tech Mahindra

M&M Financial Services

Mahindra Gesco Read More!

Hindalco shines, Major Results tomorrow

Major Heavyweight Results to drive markets tomorrow

Stock markets were in relaxing mood today after a tiring run in last few sessions. Sensex lost 25 points to close at 12858. The market breadth turned negative in the later half of the session with loosers outnumbering gainers. FII's were net buyers of Rs 389 crore on Tuesday while Mutual funds were net sellers of Rs 121.14 crore . The market is expected to open firm tomorrow. There are quite a few Heavy weight results to be announced tomorrow and hence the trading is expected to be quite hectic in these counters. Few attractive Mid-cap stories are also lined to announce results on Thursday.

Good news on Economy Indicators
The Direct tax kitty has swelled by 40% and is nearing Rs 90 k cr. The 40% rise in direct tax collections along with the 20% surge in indirect tax collections suggest two positive trends — an increase in both the tax-GDP ratio and share of direct taxes in the overall tax kitty to well above 50%. Read More

Govt aiming at 10% GDP growth
ET reports qouting Prime minister that the government was aiming to achieve 10 percent annual GDP growth by the year 2011/12, but the country needed over $300 billion to upgrade its infrastructure over the next five years. Read More

BS reports that the Planning Commission might make a pitch to Prime Minister Manmohan Singh tomorrow for a 10 per cent GDP growth target during the Eleventh Five-Year Plan period. Read More

FIEM Industries to list on Oct 19
FIEM IPO is listing tomorrow. Teh IPO was priced at Rs. 137 per share. The issue was subscribed 2.8 times. The listing is expected to be in the range of Rs.150-155.

Reliance Retail chain to go International
Reliance Retail has decided to simultaneously foray into international markets. Identified countries include Sri Lanka, Nepal, China, Vietnam, Cambodia, Indonesia, Philippines, Maldives, Kenya, Myanmar, Nigeria, Ghana and Tanzania. Read More

Wal-Mart bets big on India
Wal-Mart Stores Inc, one of world's largest organised retail chains has said that its sourcing of goods from India would be worth over 600 million dollars by the year-end, around 50 per cent more than in 2005. Read More

Hindalco puts Impressive show, other results
Hindalco Industries posted 90.40% jump in net profit to Rs 597.60 crore for the quarter ended 30 September 2006, compared to Rs 313.8 crore for the quarter ended 30 September 2005. Total Income increased to Rs 4,745 crore (Rs 2,752.10 crore)

Exide Industries has posted a net profit of 50.41% to Rs 43.74 crore for Q2 September 2006, compared to Rs 29.08 crore for Q2 September 2005. Total income has increased from Rs 338.96 crore to Rs 453.58 crore

Bank of Rajasthan’s Q2 September 2006 net profit jumped more than 10-fold to Rs 55 crore, from Rs 5.25 crore for Q2 September 2005. Its NII rose 35% to Rs 71.8 crore (Rs 52.9 crore).

Bajaj Auto’s net profit rose 10% in Q2 September 2006, to Rs 317.59 crore from Rs 289.36 crore in Q2 September 2005. Net sales rose 30.4% to Rs 2,435.97 crore from Rs 1,866.95 crore. The core operating profit margin (OPM) declined to 15% from 16.9% in Q2 September 2006.

Major results on Thursday
Heavy weights
Reliance Industries
State Bank of India
Larsen & tourbo
Ranbaxy Labs

Other Major Results
Reliance Energy
JSW steels
Canara Bank
HT Media
Kotak Mahindra
Adlab Films
3i Infotech Read More!

Sensex tests 13000, Gayatri listing today

The Indian stock markets would attempt to brek the 13000 levels today for the first time in its history. Given the positive newsflow on the Q2 results front, there do not seem to be any major resistant to this. Asian markets are also ruling firm. Let's look at the stocks which may hog limelight in today's session.

Gayatri to list today
The stock is listing today on NSE & BSE. The IPO price was Rs. 295 and the stock is expected to list in a range of 325-350. Investor would do well by booking listing gains.

Tatas, Corus reach pact for $9bn deal
The deal will further consolidate the global steel industry and will put Tata Steel among the top 10 steel companies in the world. The new entity will become the sixth largest steel manufacturer with annual production of at least 23m tonnes per annum. Read More

Indiabulls plans to demerge financial services business
Indiabulls Financial Services on Monday said the company has plans to demerge its financial services business — consumer finance and securities business — as part of its attempts to increase individual focus on both businesses. The demerger proposal is seen as a move to unlock value, mainly for its rapidly growing consumer finance arm.Read More

RIL to sell ATF at 25 airports
Public sector monopoly in the aviation turbine fuel (ATF) business is finally coming to an end. Reliance Industries is entering the business in a big way to infuse competition, fulfilling a long-standing demand of airlines..Read More

Stocks in T2T from October 20
BPL, Shringar Cinemas, Silverline Tech and SPIC

Results Today
Jet Airways
Bharat Forge
Gabriel India
Mahindra Gesco
India Infoline
Petronet LNG Read More!

Stocks in News : Richa Knits, Shringar Cinema

Richa Knits listing today, Ambani brothers eyes Shringar Stake

Richa Knits Ltd. is listing today on BSE and NSE. The allotment was made at Rs. 30 per share. The issue was subscribed 1.7 times. Investment Guru expects the stock to open today between Rs. 32-34 range. Investors are advised to book profits on listing.

RIL, ADAG eye Shringar cinemas
The Reliance Anil Dhirubhai Ambani group (ADAG) and the Reliance Industries group are in separate discussions with the promoters of Shringar Cinemas to buy a substantial stake in the company, people close to the talks said. The Shroff family, which is in the film exhibition business under the ‘Fame’ umbrella, is in talks with the representatives of both the groups for selling a large stake. The promoters now own about 47.5%. Read More

Reliance may spin off assets in K-G basin
Reliance Industries plans to spin off its assets in the Krishna-Godavari (K-G) basin into a separate company. The move is seen as a precursor to the induction of a strategic investor in the proposed entity. Reliance’s natural gas reserves in the K-G basin are estimated to be more than 50 trillion cubic feet (tcf), against previous estimates of 35 tcf. In case Reliance Industries decided to invite a strategic partner, Chevron would be the preferred choice. Read More

Welspun group lines up Rs 6,400 cr for Orissa
Welspun Power and Steel Ltd and Welspun Anjar SEZ Ltd, two companies of the $1 billion Welspun Group, today signed separate memoranda of understanding with the Orissa government for setting up a 3 million tonne steel and pipe plant and an integrated textile park in the state. The combined investment in the projects is pegged at Rs 6,403.80 crore.Read More

Results Today
Apollo Tyres
Dalmia Cement
Prime Securities
Tamil Nadu Newsprint Read More!

Infosys celebrates diwali with fireworks

Dazzling Q2 performance, Ups FY07 Guidance

The suspense is over. Infosys has declared the Q2 results and it has been on the pleasant side.
The company has reported a net profit of Rs 930 crore for Q2 September 2006 as per Indian GAAP, compared to Rs 606 crore for Q2 September 2005, a growth of 53.3%. Consolidated revenue rose 50.4% to Rs 3,451 crore from Rs 2,294 crore. The core operating profit margin (OPM) has inched ahead to 32.1% from 31.9%. On a sequential basis, OPM has risen from 29.5% of Q1 June 2006.

The company's Q2 net profit is up 17.13% at Rs 930 crore (Rs 9.30 billion) from Rs 794 crore (Rs 7.94 billion), quarter-on-quarter, QoQ.

The company's FY07 revenue growth guidance has been revised upwards at 45.5% . Its revenue guidance is of over USD 3 billion.Its revenue guidance is up from Rs 13,400 crore (Rs 134 billion) to Rs 13,899 crore (Rs 138.99 billion) . The EPS guidance is up from Rs 62.25-62.87 to Rs 66.

The stock markets have cheered the infosys results and the stock has hit a 52 week high of Rs. 2044 today before settling at Rs. 2000 levels.

For more details on Infosys Q2 Results Click Here
Read More!

Opening Bell: Markets to remain Firm today

Indian stock markets are expected to remain firm today backed by recovery in Asean and US Markets. Nasdaq was up 12 points, whileDow Jones was up 7 points. Japan's Nikkei was up 126 points. Mutual funds are reported to have resumed buying off late. The Q2 results wil be kicked off tomorrow by Infosys. Firm trend is also expected in Cement stocks, especially the mid size cement companies.

Stocks in News

The company is going to kickoff the Q2 Earnings calendar tomorrow. The stock may see action paked volatility today with pre result declaration trading in the stock.

DCB IPO Oversubscribed
Development Credit Bank Ltd witnessed a buoyant response from investors for its public issue of 7.15 crore shares, which closed on Friday with an oversubscription of more than 30 times.

Moser Baer
Govt has imposed anti-dumping duty of Rs 2.24-4.20 on rewritable CDs imported from China, Taiwan, Singapore & HK. The move is expected to be a positive for Moser bayer.

Others Stocks expected to move up today
Based on trading patterns Kotak Mahindra Bank, Mphasis BFL, Satyam Computers and Karnataka Bank are expected to remain firm.
Read More!

Are markets gearing up for New Highs ?

All eyes on Infosys Results, Economic Indicators positive

The Indian stock markets showed mixed trends during the closing week and sensex finally settled to close at 12373. The sensex shed 100 points during the week. Nifty closed the week at 3570.

All eyes are set for the coming week when the Q2 results will start flowing. The trendsetter will however be the results of Tech bell weather “INFOSYS”. But this time around, it is not going to impact only the tech sector. Infosys results have the abilities to shake the broader markets which are looking out for triggers for directional move.

Let’s have a wrap of what’s up for the coming days !

Techincals look positive

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The technicals shows no signs of a bear phase . The sensex is placed well above the 50 and 100 DMA. The current consolidation in the markets would increase the probability of the sensex making a new high.

FII’s slow down , Mutual funds sitting on Cash

The FII’s investment saw a bit of slowdown during the tale end of the week. The FII’s have been net buyers to the tune of Rs. 580 Crore in the month of October. FII’s were net buyers of Rs.5424 crore in the month of September.
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Mutual funds were net sellers to the tune of Rs.112 crore in October till date. They were net buyers of Rs. 1340 crores in September-06. Mutuals funds are still sitting on a pile of cash and may lend support to the markets during correction phase.

The daring Duo is Bullish, talks of 10% growth rate

The daring duo of Indian economy , Prime minister Manmohan singh and Finance Minister P.Chidambaram set a bullish tone the Indian economy’s growth prospects addressing a conference on Infrastructure Sector.Mr. singh said that India's economy, Asia's fourth largest, can grow at an annual pace of 10 percent ,tackling poverty,if nearly $320 billion is spent fixing creaky infrastructure. The government wants sustained 8-10 percent growth to significantly cut poverty in a country with 1.1 billion people.
Finance Minister P. Chidambaram said the economy recorded growth in the July-September quarter of over 8 percent from a year earlier, mainly due to strong consumer demand that boosted the services and manufacturing sectors.

To Conclude
Well, the week ahead would be a mix of volatility. The quarterly results would act as a immediate triggers for the markets. The markets have built up a expectation of positive news flow from the Q2 results and India Inc. and any disappointment (chances less likely) may trigger a downside. If everything goes well, the probability of sensex touching new highs in coming days is more.
Read More!

IPO Update : Accel Frontline

Take a Backseat on this !

Accel Frontline (hereafter called”Accel”) has entered the capital market with a public issue of 56.36 Lac equity shares at a price band of Rs. 75-90. Investment Guru rates this IPO as “Below Average” as it is priced aggressively and recommends investors to stay away from the IPO.

Highlights of the Issue :

Accel is a Information Technology (“IT”) Services provider specialising in consulting, infrastructure, applications, outsourcing and support services.

The company has structured its business by carving out four strategic business units (“SBUs”) namely IT Infrastructure Solutions; IT Infrastructure Management Services; Enterprise Software Solutions; and Business Process Outsourcing Services.

The company mentions end-to-end IT solutions, strong focus on customer service, strong pan India customer service network and stable management setup as its competitive strength.

The IPO proceeds would be used to fund global business expansion plans including development of our overseas marketing and sales infrastructure and to acquire or invest in strategic businesses(Rs. 30 Crore), to increase ESS and BPO capacities (9 Crore) and for working capital requirements(Rs. 20 Crore).

IT Infrastructure segment generates 55% of the Revenue for the company while service segment generates the balance 45%. The company expects to increase share of service revenue.

Financials: Total Income has grown by 25% in FY06 compared to FY05. Net profit has grown by 130% in the same period. However, one should note that the company’s sales has grown by just 10% over last 5 Years. Company has incurred losses in FY04. Hence, consistency is not seen in the financial performance.

Cash flow from operating activities has been negative in three out of the last five years

The weighted average EPS comes to 2.74. The offer comes at a PE multiple of 27-33. Competitors are quoting at a PE of 17-24. So tell me friends, would you like to buy shares of CMC, HCL, 3i Infotech which are established players and are quoting at lower PE or would you like to apply for accel IPO at a higher PE than these companies. The choice is yours !

The weighted average return of Net worth is 7.94 %. Competitors are generating returns in the range of 13-57%.

The pre-issue NAV per share comes to Rs. 15.86.

Issue Opens : 28-Sep-2006
Issue Closes : 05-Oct-2006
Registrar : Karvy

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IPO Update : Hanung Toys and Textiles Limited

It’s not a child’s game

Hanung Toys and Textiles (hereafter called as ”HTTL ”) has entered the capital markets with a public issue of 95 Lac equity shares offered through book-building at a price band of Rs. 85-95. Investment Guru rates this issue as “Average” and recommends investors to apply with expectation of moderate listing gains.

Let’s dig into the issue highlights :

HTTL offers a combination of two business –Stuff toys and home furnishings.

HTTL has capacity of producing 1.1 Crore pcs. per year of stuff toys and furnishing unit with the capacity of manufacturing 12.5 Lac sets p.a. The textile processing unit has the capacity of processing 60 Lac meters p.a. and have the '16 color 108 inches wide' printing machine.

The company mainly exports to USA and Eurpoe (96% of total export). Company has also launched domestic Brands viz. "Play-n-Pets" and "Muskan" in stuff toys and "Splash" in home furnishing.

The issue proceeds will be used to set up an integrated home textile unit with a total cost of Rs 153.44 crore, which includes 72 air-jet looms with superior quality wider width weaving capacity of 21,000 meters per day and processing capacity of 1,05,000 meters per day The company also plans to part substitute its existing working capital requirement of Rs.15 crore.

The company has mentioned Duty Free Imports and Single Window Clearance, innovative Design and Development, Interest Cost Benefits, Established Domestic Network and Brands as its competitive strength.

Bennet, Coleman and Co has acquired 5 lakh equity shares at a price of Rs 150 per share constituting 1.99 per cent of the post issue equity share capital of the company.

Financials : Net Income from opretions has grown by 82% in Fy06 as compared to FY05. Net profit has seen a 215% growth in the same period.

The weighted average EPS for last three years comes to 11.47 which makes the offer price ata P/E of 7.4 – 8.3.

Weighted average Return on Networth comes to 17%. Net asset value per share is Rs. 45.72

The company prospectus mentions that there are no peers in Toy segment. Peers in Home furnishing are quoting in the P/E range of 7-17. Competitors generate return on networth in the range of 14-24%.

Issue Opens : 28-Sep-2006
Issue Closes : 05-Oct-2006
Registrar : Karvy
Read More!