Macquarie puts 'outperform' on Mahindra & Mahindra

RESEARCH: MACQUARIE

RATING: OUTPERFORM

CMP: Rs 619

Macquarie initiates coverage on Mahindra & Mahindra (M&M) with an `Outperform’ rating and a target price of Rs 740. It rates M&M as a top pick in the Indian auto space. With leadership in the utility vehicle and tractor segments and a robust estimated 13% CAGR in earnings over the next three years, at 9.3x core auto FY12E PE, Macquarie thinks M&M remains one of the most attractively valued stocks in its coverage universe.

It forecasts M&M’s earnings to grow at a CAGR of 13% over the next three years despite a minor decline in margins. The stock trades at about 28% discount to its peers on core auto business valuations. Macquarie ascribes a PE multiple of 14x, in line with sector average, to core auto earnings, valuing it at Rs 583 per share and value listed subsidiaries at a 20% discount to current market cap, in-line with our valuation methodology for other auto names.