Mahindra & Mahindra
Cluster: Apple Green
Recommendation: Buy
Price target: Rs870
Current market price: Rs835
Buy-out urges unsated
Key points
- Mahindra & Mahindra (M&M) has been in the thick of action lately, announcing two acquisitions and planning to enter the US markets. The company appears to be well on its way to target sales of $1 billion for the Mahindra Systems and Technology group by 2010.
- M&M has acquired DGP Hinoday by buying out its existing shareholders—the DG Piramal group and India Private Equity Fund, Mauritius. The residual stake of 34% would continue to be with Hitachi Metals. DGP Hinoday is a market leader in castings and ferrites with sales of Rs243 crore.
- Though the price at which these acquisitions have been made have not been announced, we are impressed by the overall strategy of the group and maintain our positive stance on the stock.
- M&M expects to maintain the strong volume growth momentum in the automotive sector in H2 at roughly the same pace as in the first half of the fiscal, ie around 14-15%.
- Using the sum-of-parts model, we have valued M&M's core business at Rs607 (14x FY2008E earnings) and its subsidiaries at Rs263. We maintain our Buy recommendation on the stock with a price target of Rs870.