Mahindra & Mahindra LTD

Detailed Report | 4 July 2016
Sector: Automobile
Mahindra & Mahindra

TECHM
MMFS
UVs
Tractors
All stars aligning!

Jinesh Gandhi (Jinesh@MotilalOswal.com); +91 22 3982 5416
Aditya Vora (Aditya.Vora@MotilalOswal.com); +91 22 3078 4701
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Mahindra & Mahindra
Mahindra & Mahindra: All stars aligning!

Summary ............................................................................................................. 3
Story in charts (Infographic) .................................................................................. 4
All stars aligning! .................................................................................................. 6
Normal monsoon, low base to drive growth for tractors ........................................ 8
UVs back on track driven by plugging of gaps ...................................................... 14
EBITDA margin: Worst behind; should expand..................................................... 21
Valuation and view: All stars aligning!................................................................. 23
Financials and Valuations ................................................................................... 29
4 July 2016
2
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& Mahindra
Detailed Report Mahindra
| Sector: Automobiles
Mahindra & Mahindra

BSE Sensex
27,279
S&P CNX
8,371
Motilal Oswal values your

support in the Asiamoney Brokers
Poll 2016 for India Research, Sales
and Trading team.
We request your ballot.
CMP: INR1,466
Expect 34% EPS CAGR, valuations reasonable upgrading to Buy
MM IN
592.6
1,473/1,092
7/11/15
868.5
12.9
1,342
74.6
Financial Snapshot (INR b)

Y/E Mar
2016 2017E
Sales
436.1 506.0
EBITDA
45.7 55.1
NP (incl. MVML) 32.9 38.9
Adj. EPS (INR) *
55.0 65.0
EPS Gr. (%)
4.2
18.1
Cons. EPS (INR)
53.6 72.6
BV/Share (INR)
366
410
RoE (%)
15.2 15.8
RoCE (%)
12.4 13.2
Payout (%)
32.6 33.1
Valuations
P/E (x)
26.6 22.5
Cons. P/E (x)
27.4 20.2
P/BV (x)
4.0
3.6
EV/EBITDA (x)
18.8 15.5
2018E
586.4
67.3
50.1
83.7
28.8
95.8
469
18.0
15.2
29.4
17.5
15.3
3.1
12.4
* incl. MVML
Shareholding pattern (%)
As On
Mar-16 Dec-15 Mar-15
Promoter
25.4
25.5
25.7
DII
18.1
18.8
18.5
FII
42.9
42.9
43.0
Others
13.5
12.9
12.9
FII Includes depository receipts
Upgrade to Buy
All stars aligning!
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
TP: INR1,724 (+18%)
With rural India contributing ~72% to standalone PAT and ~64% to SOTP value,
MM would be one of the biggest beneficiaries of a normal monsoon.
After a four-year gap, both UVs and tractors are set to deliver double-digit volume
growth.
Levers to offset headwinds on margins estimate ~100bp improvement by FY18.
Upgrade to Buy, with SOTP-based target price of ~INR1,724 upside of ~18%.
All stars aligning!: The monsoon plays an important part in MMs fortunes,
as the rural market contributes ~56% to revenue, 72% to standalone PAT
and ~64% to SOTP value. After a four-year gap, we expect both the
businesses Tractors and UVs to deliver ~14.5% volume CAGR over FY1618 (v/s flat volumes over FY14-16). This would be supplemented with
recovery in key subsidiaries like MMFS, TECHM and Ssangyong.
Normal monsoon, low base to drive growth for tractors: We expect MMs
tractor volumes to recover sharply, with ~18.4% CAGR over FY16-18, driven
by normal monsoon and low base (over FY14-16, volumes had declined at
11% per year). The government's target to double farm income in five years
would not only help in reducing volatility in tractors, but also act as a
catalyst to drive penetration of implements (~2% of MMs FES revenue v/s
global average of ~66%).
UVs back on track, driven by plugging of gaps: MM has addressed product
gap issues, with three new launches in the UV1 segment, the full benefit of
which would be reflected in FY17/18. KUV1OO, targeted at compact car
buyers and priced at ~INR501k, could expand the addressable market for
MM by ~1.8x of its existing segment. MM could also reduce prices for
Scorpio and XUV5OO by ~13.5% by launching mild hybrids, which enjoy
concessional excise duty. Lastly, with 57% market share in LCVs <3.5ton,
MMs pick-up volumes are likely to grow at a CAGR of ~15% over FY16-18,
driven by economic recovery.
Levers to improve margins: MM has several levers mix, lower MTBL
losses, lower marketing spend, operating leverage to offset the impact of
exhaustion of the Haridwar plant incentive and commodity price inflation.
Despite these headwinds, we expect EBITDA margin to expand 80bp over
FY16-18 to 12.9% (based on IndAS), translating into ~21% EBITDA CAGR over
FY16-18.
Upgrading to Buy: The worst is over for MM not only in its core businesses
of Tractors (driven by normal monsoon) and UVs (driven by recent
launches), but also in key subsidiaries. We expect ~34% CAGR in
consolidated EPS over FY16-18 (v/s a decline of ~14% per year over FY1416). The stock trades at 17.5x FY18E standalone EPS, 15.3x FY18E
consolidated EPS, and 5.2% FY18E FCF yield. Considering the strong earnings
cycle ahead, we upgrade the stock from Neutral to Buy. Our SOTP-based
target price is ~INR1,724 (16x FY18E core EPS + subsidiaries at 20% HoldCo
discount).
4 July 2016
3
STORY IN CHARTS
Mahindra & Mahindra
Both core businesses back on growth path after four years

Tractors
32
Uvs
Vol Gr., %
22 20
20 18
10
-5
FY12
FY13
-9
FY14
-13
15
10
Both
business
grew >10%?
Both
businesses
grew?
FY12
FY13
FY14
FY15
FY16
FY17
FY18
TRUE
FALSE
FALSE
FALSE
FALSE
TRUE
TRUE
TRUE
FALSE
FALSE
FALSE
FALSE
TRUE
TRUE
-7 -9
FY15
FY16
FY17E
FY18E
MM would be one of the biggest beneficiaries of normal monsoon, considering rural contributes 72% to S/A PAT
Normal monsoon augurs well for
MM, given higher revenue
contribution of rural India
Rural India accounted for

~72% PAT share in FY16
Rural India to account for 68%

of MMs FY18E SOTP value
Urban,
28%
Urban,
32%
Urban, 44% Rural, 72%
Rural, 56%
Rural, 68%
Target of doubling farm income in five years to be driven by six initiatives

Enabling farmers to get
right prices and/or reduce
wastage of agri produce
100% FDI in Food

Processing
e-Mandi
Will carry crop-wise

recommendations of nutrients
/fertilizers requirement,
helping farmers to improve
productivity by wisely using
inputs
Targeting investments of
~INR865b for irrigating
~80m hectares over next
5years (v/s ~65m ha
irrigated land of ~140m ha
of farmland)
Envisages real-time electronic

auctioning of the agricommodities, establishing
National Agriculture Market
Soil Health Card

DBT on
Fertilizers
Irrigation
Schemes
Crop
Insurance
To reduce leakage of
subsidy in the system, and
promote optimum use of
several fertilizers
Minimum Premium, Maximum

Insurance for farmers
4 July 2016
4
STORY IN CHARTS
Global farm machinery market likely to account for twothirds share by 2018
Mahindra & Mahindra
Implements business accounts for miniscule ~2% of FES

revenue for MM
Appalitric revenues(INR m)
Tractors
33%
1.6
1.0
Farm
Machinery
67%
2,320
% of FES revenues
2.0
1.9
2,660
2,370
1,200
FY13
FY14
FY15
FY16
Absence of new launches and relevant product portfolio led to decline in MMs market share in UV1 segment
Ertiga
Launch
EcoSport
Launch
Market share
improvement
due to launch of
KUV 100 and
TUV 300
Lack of new
launches
continued to
weigh on
M&M
share
Duster
Launch
KUV1OO: Pricing of ~INR500-800k positions it directly in compact car segment (priced at ~INR500-800k), which is over 1m
units p.a or ~1.8x UV industry
FY11
FY12
FY13
FY14
Vols of cars priced at

INR500K-700K
457,832
505,361
646,996
796,261
925,819 1,073,109
Total UV Volumes
316,200
365,136
553,662
525,602
549,976
586,663
1.4
1.4
1.2
1.5
1.7
1.8
Ratio
FY15
FY16
Source: MOSL
4 July 2016
5
Mahindra & Mahindra
All stars aligning!

Both core businesses on growth track after four-year gap
FY14-16 was one of the worst periods for MM, during which volumes declined 4.6%
per year, standalone PAT declined 7.6% per year, and consolidated PAT declined ~14%
per year. Its performance was impacted by one of the worst monsoon failures in three
decades and gaps in its UV product portfolio.
The monsoon plays an important role in MMs fortunes, not only for Tractors (~90%
rural exposure) and Autos (~40% rural), but also for key subsidiaries like MMFS (over
80% rural exposure).
After a four-year gap, both of MMs businesses Tractors and UVs are set to deliver
double-digit growth in FY17/18, driven by normal monsoon and benefit of recent
launches.
Also, MMFS is likely to return to normalcy, with stabilization in asset quality and
return to normal growth path. Credit cost, which stood at a decade high of 3.68% in
3QFY16, normalized to 1.15% in 4QFY16. Provisions normalized from 67% of operating
profit in 9MFY16 to ~16% in 4QFY16.
Similarly, the worst is over for TECHM, with early signs of growth visible in the
Telecom segment and restructuring of LCC largely completed.
Exhibit 1: Both core businesses back on growth path after four years
Vol Growth (%)
Tractors
Uvs
Both business grew >10%?
Both businesses grew?
FY12
10
32
TRUE
TRUE
FY13
-5
22
FALSE
FALSE
FY14
20
-9
FALSE
FALSE
FY15
-13
-7
FALSE
FALSE
FY16
-9
7
FALSE
FALSE
FY17E
20
18
TRUE
TRUE
FY18E
15
10
TRUE
TRUE
Source: MOSL
Exhibit 2: Long-term trend in monsoon on pan-India basis, including FY17 estimates

Rainfall (% Departure)
25
Deficient
Excess
15
5
-5
-15
1901
1904
1907
1910
1913
1916
1919
1922
1925
1928
1931
1934
1937
1940
1943
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
-25
Exhibit 3: Normal monsoon augurs well for MM, given

higher revenue contribution of rural India
Exhibit 4: Rural India accounted for ~72% PAT share in FY16

Urban, 28
Urban, 44
Rural , 56
Rural, 72
4 July 2016
6
Mahindra & Mahindra

Exhibit 5: Rural India to account for 68% of MMs FY18E SOTP value
Urban, 32
Rural, 68
Source: MOSL
Exhibit 6: Everything falling in place

What went wrong?
FY16
What is changing?
FY18
Vol. Growth (%)
-8.7
15
Utilization (%)
62
85
Remarks
Tractors
Margins (%)
Passenger UV's
UV Ind Gr (%)
16
15
UV2 Ind Gr (%)
-7.2
UV Mkt Sh (%)
41% (-11.6pp since FY13)
M&M UV Gr(%)
7.9
Margins (%)
Pick Ups
16% (-140 bp since FY14)
Vol. Growth (%)
13.7
10% (-180 bp since FY13)

-2.2
20
Slower rural economy in last two years

resulted in single digit AUM growth and asset
quality issues (10% GNPAs and credit costs of
3.68%), resulting in PAT decline of 19% in
FY16. With normal monsoon and government
boost for rural economy, we expect asset
quality stabilization, volume growth pick-up
and margin expansion, in turn driving PAT
CAGR of ~25.6% CAGR (FY16-18E)
Weakness in telecom segment revenues

along-with pruning ~25% of the revenues of
recently acquired LCC due to emergence of
profitability issues. However, there are signs
of pick up in deal activity within the Telecom
sector. TECHM won one large deal last quarter
and expects to close 1-2 more. As a result, the
company believes that declining trend in
revenues from Telecom is behind, and it
should return to growth, though modest,
going forward. The remaining 50% of business,
which is non-Telecom, remains solid, growing
marginally ahead of industry in mid-teens.
Market Share (%) 77% (+470bp since FY14)

MMFSL
Tech Mahindra
FY16
FY17/18
AUM Growth (%)
8.4
14.5% CAGR
Credit Costs (%)
2.9
2.6/2.2
NIMs
8.7
9/8.8
NPAs
8.3
8.3/7
Prov (% of PBT)
101
81/65
PAT Growth (%)
-19
25.6% CAGR
Revenue Gr (%)
(ex LCC)
2%
10.7% CAGR
-6.6%
5% CAGR
11%
15.5% CAGR
- Telecom Gr (%)
- Others Gr (%)
Two consecutive monsoons resulted in ~9%

CAGR decline in tractor industry. However,
with expectations of normal monsoon and
recovery in road construction activity, tractor
volumes are expected to grow ~17.5% CAGR
(or ~2.5% CAGR over FY14-18E).
M&M's UV business was badly impacted by
lack of compact SUV, a segment which was
seeing very strong growth. In last 12 months,
it launched 4 new products (of which 3 are in
compact SUV segment). New products
coupled with rural revival (~40% of volumes)
would drive ~14% CAGR (FY16-18E) in UV
volumes for M&M.
SCV (<3.5 tons) industry declined ~10% CAGR
(FY14-16), but pick-ups declined just 1%.
M&M gained market share in SCV segment by
~11pp since FY14.
Order intakes
($ m)
Deal wins at USD250300m/qtr, but skewed

towards Enterprise
segment
Consol EBITDA
Margins
16.4%
16.9% by FY18
EBITDA Gr (%)
4.60%
15% CAGR
4 July 2016
7
Mahindra & Mahindra
Normal monsoon, low base to drive growth for tractors

Structural changes in farming to help reduce volatility in growth
We expect MMs tractor volumes to recover sharply, with 18.4% CAGR over FY16-18,
driven by normal monsoon and low base (worst monsoon in three decades had led to
~11% decline per year over FY14-16).
The government's strategy aimed at doubling farm income in five years has the
potential to deliver and should incentivize farmers to invest in farms. This would not
only reduce volatility in tractor volumes, but also act as a catalyst to drive higher
penetration of implements in India.
Agricultural implements currently contribute just ~2% to MMs FES revenue (v/s global
average of ~66%). We believe this is a highly underpenetrated segment and offers
long-term potential for MM considering its well-placed alliances with Mitsubishi Agri
Machinery and Sampo Rosenlew.
Normal monsoon could reverse sentiment and spur growth
Two consecutive years of below normal monsoon (14% below LPA for FY15/16)
led to 11.8% decline in volumes per year for the domestic tractor industry over
FY14-16. MM, with ~41% market share in tractors, saw its volumes shrink by
~11% per year over FY14-16.
States like UP, MP, AP, Maharashtra and Gujarat have high dependence on
agriculture, and consequently, high share in tractor volumes. Incidentally, most
of these markets have witnessed significant shortfall in monsoon over the past
two years, resulting in 14.1% decline in tractor volumes per year in these top-6
states (~62% of the industry).
Average monthly tractor volumes reduced from ~53k units in FY14 to ~42k units
in FY16, implying a conducive base for the industry.
After four quarters of decline, tractor volumes are recovering since 3QFY16
(+5% YoY) and 4QFY16 (+12% YoY).
We expect MM to grow faster than the industry due to benefit of recent
launches (Arjun Nuvo and Yuvo). We estimate 18.4% CAGR in MMs tractor
volumes over FY16-18 (v/s 15-16% CAGR for the industry).
Based on our estimates, MMs FY18 tractor volumes would be ~12% higher than
the peak of FY14 (2.9% CAGR over FY14-18E).
Exhibit 7: States with highest monsoon deficit to witness sharp growth in tractor volumes
States
Uttar Pradesh
Rajasthan
Madhya Pradesh
AP+Telangana
Maharashtra
Gujarat
Bihar
Karnataka
Tamil Nadu
Punjab
Chattisgarh
West Bengal
Orissa
State-wise tractor
contribution
(2015-16)
14.5
12.4
9.8
8.8
8.5
8.1
7.2
6.6
3.0
3.6
3.4
2.6
2.6
2 Yr Avg Rainfall
Deviation
Vol CAGR
(FY14-16)
Mahindra
market share
-40.6
7.4
-12.6
-16.5
-20.8
-15.6
-21.7
-8.9
-0.4
-32.1
-7.0
-6.9
-3.6
-13.5
-9.6
-25.8
-0.9
-19.9
-7.7
-6.4
3.5
21.8
-23.1
-16.7
-3.0
2.2
38.9
28.6
32.5
48.2
45.2
43.0
45.5
47.3
50.8
39.5
45.6
51.4
49.9
Source: MOSL
4 July 2016
8
Mahindra & Mahindra

Exhibit 8: Industry tractor volumes trending below long-term average
Industry vols ('000 units)
Linear (Industry vols ('000 units))
800
600
400
200
FY18E
FY17E
FY16
FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
Source: MOSL
Exhibit 9: Low base of FY16 to benefit MMs tractor growth in FY17 (000 units)
FY15
H1FY16: -20.7%
H1FY17:+21.8%
30
FY16
FY17
H2FY16: 7.8%
H2FY17:+22.2%
32
29
24
21
23
21
35
30 17
19
15
15 24
24
15
12 18
15
20 11 17 12 17
18
19
25
15
12
18
28
22
13
15
14
15
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Source: MOSL
Infrastructure segment recovery to also boost tractor volumes
10-15% of the tractors sold in India are used in the infrastructure segment
primarily for haulage of material in infrastructure projects.
Slowdown in construction activity and ban on sand mining and brick kiln
operations in several states impacted growth from the commercial segment.
However, post decline in rural investments in FY15/16, the execution of rural
roads has picked up pace. We expect rural spending on infrastructure to gain
momentum, as funding issues are resolved. This would drive demand for
commercial usage of tractors.
Exhibit 10: Trend in total rural roads awarded

Length in kms
Exhibit 11: Trend in length of national highways completed
Year-wise investments(INRb)
149
131
124
41
km/day
188
134
109
84
60,117
45,100
30,995
24,161
25,316
26,582
27,379
FY10
FY11
FY12
FY13
FY14
FY15
FY16E
14.1
12.2
13.7
15.7
FY10
FY11
FY12
FY13
11
12.1
FY14
FY15
Source: MOSL
4 July 2016
16.5
FY16
FY17E
(Target)
Source: MOSL
9
Mahindra & Mahindra
Availability of finance a key demand driver; NPAs to decline

With 70-75% of tractors purchased on credit, availability of financing is a key
demand driver for the tractor industry.
Farm incomes have declined over the past two years due to deficient rainfall
coupled with limited hike in MSPs and decline in rural wages.
The pace of growth in agriculture loans slowed down from 18% CAGR over FY1013 to 11% over FY14-16, as NPAs increased and financing became tight.
As farm incomes improve, we expect NPAs to decline, leading to higher
availability of finance, driving tractor sales in FY17. Besides the central
governments initiatives such as change in crop insurance schemes, higher
spending on irrigation schemes should boost farm incomes.
Exhibit 12: NPAs in agriculture sector to decline as farm incomes improve

Agriculture loans(INRb)
Ratio of gross NPA to agriculture loans o/s

4.7
4.3
4.7
4.4
4.1
3.3
2.2
4636
5072
5802
6428
7698
8295
9539
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Source: RBI, MOSL
GNPA (% of Total Assets)
Source: Company, MOSL
3QFY16
1QFY16
3QFY15
1QFY15
3QFY14
1QFY14
3QFY13
0
1QFY13
3QFY16
1QFY16
-20
3QFY15
-5
1QFY15
3QFY14
0
1QFY14
15
3QFY13
1QFY13
20
3QFY12
35
1QFY12
40
3QFY11
55
1QFY11
NNPA (% of Total Assets)
12
3QFY12
60
1QFY12
Growth (%) - RHS
3QFY11
Tractors - AUM
75
Exhibit 14: also reflecting in asset quality stabilization
1QFY11
Exhibit 13: MMFS tractor AUM growth showing initial signs

of pickup
Governments focus on doubling farm income to reduce volatility
The NDA government has set an ambitious target to double farm income in the
next five years. It has taken several initiatives such as the following to achieve
this:
New Crop Insurance Scheme Minimum Premium, Maximum Insurance for
farmers.
Irrigation Targeting investments of ~INR865b for irrigating ~80m hectares
over the next five years (v/s ~65m hectares irrigated land of ~140m hectares
of farmland).
4 July 2016
10
Mahindra & Mahindra
DBT on fertilizer To reduce leakage of subsidy in the system and promote

optimum use of several fertilizers.
Soil Health Card Will carry crop-wise recommendations on
nutrient/fertilizer requirement, helping farmers to improve productivity by
wisely using inputs.
E-Mandi: Envisages real-time electronic auctioning of agri commodities and
establishment of National Agriculture Market.
100% FDI in Food Processing To enable farmers to get right prices and/or
reduce wastage of agri produce.
While it is too early to judge these initiatives, it appears that the governments
strategy to attain its objective has the potential to deliver and significantly
incentivize farmers to invest in farms.
These augur well for not only for reducing volatility in tractor volumes, but also
act as catalyst to drive higher penetration of implements in India.
Target of doubling farm income in five years to be driven by six initiatives

Enabling farmers to get
right prices and/or reduce
wastage of agri produce
100% FDI in Food

Processing
Envisages real-time electronic

auctioning of the agricommodities, establishing
National Agriculture Market
e-Mandi
Will carry crop-wise
recommendations of nutrients
/fertilizers requirement,
helping farmers to improve
productivity by wisely using
inputs
Soil Health Card

DBT on
Fertilizers
Targeting investments of
~INR865b for irrigating
~80m hectares over next
5years (v/s ~65m ha
irrigated land of ~140m ha
of farmland)
To reduce leakage of
subsidy in the system, and
promote optimum use of
several fertilizers
Irrigation
Schemes
Crop
Insurance
Minimum Premium, Maximum

Insurance for farmers
Exhibit 15: New crop insurance scheme to provide stability in farm incomes
Features
Premium
rate
One season one
premium
Insurance amount
cover
Localised risk
coverage
Post harvest loss
coverage
Use of technology
Settlement
Coverage
MNAIS (2010)
High Ranging
from 4-15%
No
PM crop Insurance scheme

Benefit
Low- 2% for Kharif crops and 1.5%
Lower premium rate to increase penetration
for Rabi crops
Higher insurance cover to help mitigate losses on
Yes
account of total damage
Capped
Full
Hail storm. Landslide
Hail storm, Landslide, Inundation
Costal areas- for cyclonic

rain
Intended
Delay in settlement of
insurance sum
23% covered
All India - For cyclonic + Unseasonal

rains
Mandatory
25% settled directly in the farmers
bank account
Aim to bring coverage to 50%
Increased coverage to insulate farmers from damages
Reduction in delay of payment; resulting in better

cash flows for farmers
Source: MOSL
4 July 2016
11
Mahindra & Mahindra

Exhibit 16: Irrigation schemes to boost farm incomes
Irrigation schemes
Govt plan/strategy Fast tracking of 89 projects under accelerated irrigation benefits programme
Allocation to
INR170b to be spent on irrigation projects in FY17; INR865b over the next 5
irrigation
years
Area under irrigation ~65m hectares under irrigation
% of total arable
land
Initiatives for 201617
~46% of total arable land under irrigation

2.8 million ha to be brought under irrigation & ~80m ha over next 5 years
Source: MOSL
Exhibit 17: Spending on AIBP Projects: Pre and Post-Budget

1996-2016
2017-2022
17,300
16,000
3,650
500
Expenditure per year (INR Cr)
Area Irrigated per year ('000 Hectare)

Source: MOSL
Nascent non-Tractor business to witness strong growth
The size of the global implements business is estimated at USD131.b in 2018,

constituting ~66% of the overall farm equipment industry.
In India, the agricultural implements industry is at a nascent stage, as reflected
in MMs Applitrac (implement) business at just INR2.4b or 2% of FES revenue in
FY16. It has witnessed 25% CAGR over FY13-16.
Long-term demand drivers for the agricultural implements business are:
Stability in farm incomes, as irrigation facilities improve, coupled with focus
on increased rural spending.
Reducing dependence on a single source of income from farmers is likely to
mitigate uncertainty arising from possible crop failure.
Growing shortage of labor in rural areas, leading to increase in
mechanization.
The agricultural implements business is underpenetrated and offers long-term
potential for MM.
Further, acquisition of 33% stake in Mitsubishi Mahindra Agri Machinery and
35% stake in Finland-based Sampo Rosenlew would help MM to increase its
presence in the nascent agri-implements business in India
4 July 2016
12
Mahindra & Mahindra

Exhibit 18: Global farm machinery market likely to account for two-thirds share by 2018
Tractors
33%
Farm Machinery
67%
Exhibit 19: Global farm machinery (ex tractors) industry (USD b)

Product segments
Harvesting
Planting & Fertilizer
Haying
Tillage
Others
Parts& Attachments
Total
2013
27.2
10.6
9.2
7.5
13.8
26
94.3
2018E
39.7
15.1
12.8
10.8
19
33.6
131
2023E
56
21.5
17.9
15.1
25.9
42.9
179.3
Exhibit 20: Implements business accounts for miniscule ~2% of FES revenue for MM
Appalitric revenues(INR m)
1.6
% of FES revenues
2.0
1.9
1.0
1200
2320
2660
2370
FY13
FY14
FY15
FY16
Source: MOSL, Company
Exhibit 21: Recent acquisitions to help expand MMs global agri implements business plans
Mitsubishi Mahindra Agri Machinery (MAM)

Acquired 33 % stake
Total revenue $440mn in FY15 & EBIT positive
Product range- Tractors, Rice planters,Harvesters and rotavators & Power
Tillers
Acquisition to help address global rice value chain
Sampo Rosenlew
Acquiring 35% stake in Finland based company
Stand alone revenue of Euro 93mn in FY15
JV in Algeria with revenue of Euro 45mn in FY15
Cash positive and profitable company
Strong player in Europe, Eurasia and North America
Acquisition will help expand in Asia, Africa and Latin America
4 July 2016
13
Mahindra & Mahindra
UVs back on track driven by plugging of gaps

Worst is over for passenger UVs; product lifecycle to drive volumes in
FY17/18
MM has addressed product gap issues, with three new launches in the UV1 segment,
the full benefit of which would be reflected in FY17/18.
Its KUV1OO, launched at ~INR501k (on-road Delhi), is likely to compete with cars
priced at INR500k-700k, expanding MMs addressable market by ~1.8x its existing
segment.
MM could also narrow the pricing gap vis--vis these competitors through
concessional excise on mild hybrids (at 12.5% v/s 30% for large SUVs). We estimate
~13.5% reduction in on-road prices for Scorpio and XUV5OO, if the mild hybrid is
launched.
With 57% market share in LCVs <3.5ton, MMs pick-up volumes should grow at a CAGR
of ~15% over FY16-18, driven by economic recovery.
Product gap issues addressed, with three new model launches in UV1
segment
With changing consumer preferences towards compact UVs post the launch of
Renaults Duster and Fords Ecosport, the share of UV1 in overall UVs rose to
68% in FY16 from 45% in FY12.
Lack of products in the growing compact UV segment and absence of new
launches in the UV1 segment led to decline in MMs market share in the UV1
segment from 75% in FY12 to 31% in FY16.
However, three new launches (KUV1OO, TUV3OO and NuvoSport) in the UV1
segment since 3QFY16 helped MM to plug the gap in its product portfolio.
Besides, aggressive pricing of the new launches augurs well for MM, as
competition in the UV1 segment is intense.
Absence of new launches and relevant product portfolio led to decline in MMs market share in UV1 segment
Ertiga
Launch
Duster
Launch
EcoSport
Launch
Lack of new
launches
continued to
weigh on
M&M
share
4 July 2016
Market share
improvement
due to launch of
KUV 100 and
TUV 300
14
Mahindra & Mahindra

Exhibit 22: Absence of new launches led to MMs market share declining in UV segment
M&M UV market share
64
62
52
FY11
FY12
45
FY13
FY14
40
41
FY15
FY16
Source: SIAM, MOSL
Exhibit 23: Share of UV2 segment has increased over the years, while product fatigue has
led to market share loss in UV1 segment for MM
UV1
75
75
52
FY11
61
56
45
FY12
UV2
36
FY13
FY14
60
58
57
31
30
FY15
FY16
Source: SIAM, MOSL
Exhibit 24: MMs UV launches in last 12 months

Models
Month
Segment
Scorpio facelift
Sept-14
UV2
New XUV 500
May-15
UV2
TUV3OO
Sep-15
UV1
KUV1OO
Jan-16
UV1
NuvoSport
Apr-16
UV1
MMs KUV1OO creates new segment, expands addressable market by 1.8x
Volume of cars priced at INR500k-700k was 1.07m in FY16 1.8x total UV sales.
MM has launched KUV1OO at a price of ~INR501k (on-road Delhi). We believe it
would compete with cars priced at 500k-700k, expanding MMs addressable
market by 1.8x its existing segment.
Aggressive pricing (4-5% lower than peers) is also likely to give MM an edge.
4 July 2016
15
Mahindra & Mahindra

Exhibit 25: KUV1OO: Pricing of INR500k-800k positions it directly in compact car segment
(priced at INR500k-800k), which is over 1m units per year or ~1.8x UV industry
Vols of cars priced at
INR500K-700K
Total UV Volumes
Ratio
FY11
FY12
FY13
FY14
FY15
FY16
457,832
505,361
646,996
796,261
925,819 1,073,109
316,200
365,136
553,662
525,602
549,976
586,663
1.4
1.4
1.2
1.5
1.7
1.8
Source: MOSL
However, challenges remain for MM in UV segment
The UV segment is expected to outgrow the PV industry over the next 3-5 years.
However, growth in UVs is likely to be driven by increasing acceptance of
Compact SUVs (UV1) by car buyers, while traditional UVs (UV2, MMs forte)
could show cyclical recovery in volumes.
MMs market share in the UV1 segment was 31% in FY16. We believe new
launches have addressed MMs product gap and would add to incremental
volumes in the UV segment. However, intense competition would make it
relatively tough to make inroads to the segment.
While MM has responded to the changing industry dynamics, it is this time
challenged by market leaders like MSIL, Hyundai and Honda in the compact SUV
segment, where MM is finding its feet.
We expect profitability of MMs UV business to be under pressure in the
medium term, as it would have to shorten its product refresh cycle and adopt
aggressive pricing.
Exhibit 26: Demand for compact UVs increasing share of UV1 in UV segment
UV 1
54
44
45
FY11
FY12
FY13
59
63
FY14
FY15
68
FY16
Source: MOSL
4 July 2016
16
Mahindra & Mahindra

Exhibit 27: New launches in UV segment
Company
Renault
Ford
Nissan
Model
Duster
EcoSport
Terrano
Year of launch
2012-13
2013-14
2013-14
Honda
Honda
Hyundai
Renault
Maruti
Maruti
Toyota
Mobilio
BRV
Creta
Lodgy
Brezza
S Cross
Innova Crysta
2014-15
2015-16
2015-16
2015-16
2015-16
2015-16
2016-17
Source: MOSL
MM could narrow excise duty gap vis-a-vis cars
The Government of Indias FAME program (Faster Adoption and Manufacturing

of hybrid and Electric vehicles) promotes the use of SHVS technology for clean
environment.
Vehicles with SHVS technology would attract 12.5% excise duty as opposed to
30.7% excise duty (excluding infrastructure cess) applicable on large SUVs. Apart
from the cut in excise duty rates, an incentive of INR13,000 per vehicle is also
offered. Besides, few states like Delhi offer concessional VAT of ~5% (v/s ~12.5%
normal VAT rate).
MMs management has indicated that it is working on hybrid technology and
might be introducing it in larger SUVs, though it declined to commit on the
timeline. We believe a mild hybrid can be introduced easily since the cost and
complexity of technology added to the car is minor.
We estimate 13.5% reduction in on-road prices for Scorpio and XUV5OO, if mild
hybrid is launched, narrowing the gap vis--vis competitors.
Exhibit 28: Mild hybrids to enjoy concessional excise duty (INR 000)
On road price @ 30.8% Excise
Price of Hybrid diesel @ 12.8% Excise
Mild hybrid would drive down

cost to consumer by ~13.5%
1,028
889
745
Scorpio
1,453
1,257
644
Bolero
XUV 500
Source: MOSL
4 July 2016
17
Mahindra & Mahindra

Exhibit 29: ...significantly narrowing gap with potential competitors
Model
Price premium @30.8% Excise
Price premium @12.8% Excise
1,028
889
Honda City
-1.7
-17.5
Maruti Ciaz
8.8
-5.5
Renault Duster
-2.9
-19.0
Ford Ecosport
17.6
4.7
1. Scorpio (INR '000)
2. XUV5OO
1,453
1,257
Hyundai Creta
20.0
7.5
Maruti S-Cross
36.5
26.6
Honda B-RV
23.7
11.8
Recovery in pick-ups to continue
Subdued rural demand due to weak farm incomes and constrained availability of
finance led to a decline of 10% per year in pick-ups + SCV (<3.5T) over FY14-16.
Aggressive financing in FY13 and subsequent fall in consumption expenditure
also led to a rise in NPAs over the past two years.
However, with major demand drivers for the LCV industry turning positive
falling inflation, better freight availability, stable fuel prices, improvement in
finance availability pick-ups + SCV (<3.5T) witnessed growth in 2HFY16.
The share of pick-ups in the overall LCV (<3.5T) segment increased from 33% in
FY11 to 61% in FY16, as these offer a strong package vis--vis SCVs. This
structural shift towards pick-ups has augured well for MM over the years. Its
market leadership gives MM an added advantage.
MMs market share increased to 77% (+500bp since FY14) in pick-ups and to
57% (+11pp since FY14) in LCVs (<3.5T) in FY16.
With improving economic activity, MMs pick-up volumes should grow at a
CAGR of ~15% over FY16-18.
Exhibit 30: Pick-ups + SCVs(<3.5T) recovered after 10 quarters of YoY decline

Pick ups+SCV(<3.5T)
120
Growth (%, RHS)
50.0
100
25.0
80
0.0
60
-25.0
-50.0
40
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
FY12
FY13
FY14
FY15
FY16
Source: MOSL
4 July 2016
18
Mahindra & Mahindra

Exhibit 31: Pick-up segment has been gaining share in LCVs
<3.5T (including pick-ups)
Share of Pick ups in LCV<3.5Ton
51
33
FY11
32
FY12
56
Exhibit 32: driving MMs market share in overall LCV

(<3.5T) segment
Pick up
61
66
39
Pick ups+SCV(<3.5T)
38
FY13
FY14
FY15
FY16
65
64
36
FY11
FY12
82
72
46
35
FY13
FY14
Source: MOSL
77
57
51
FY15
FY16
Source: MOSL
Exhibit 33: Trend in passenger UVs v/s pick-ups for MM

Passenger Uvs
Pickups
43
40
44
40
40
57
60
56
60
60
FY12
FY13
FY14
FY15
FY16
Source: MOSL
Better prepared for regulatory changes now
With the ban on diesel vehicles above 2,000cc in NCR and Kerala, MM promptly
responded with the launch of its downsized 1.99 liter diesel engine in its models,
Scorpio and XUV5OO.
MMs prompt action arrested the initial decline in market share in the NCR
region, which accounts for ~5% of its countrywide sales volumes.
Further, with focus on de-risking the UV business, it plans to offer petrol engines
across all UVs in the next 2.5 years. It will offer 2.2 liter petrol engines in Scorpio
and XUV5OO in a year.
4 July 2016
19
Mahindra & Mahindra

Exhibit 34: Detailed actions taken by MM on technological changes to meet regulatory
changes
Initiatives
taken
Products in
Pipeline
Launch of newly developed 1.99-litre mHawk engine in Scorpio

and XUV5OO
Launch of its first 1.2 litre petrol variant in KUV1OO in January
2016. Product jointly developed with SsangYong Motor company.
Working on a 1.5 and 1.6 litre petrol engines, developed in house.

2.2 litre petrol engine for Scorpio and XUV500 being developed
jointly with its subsidiary SsangYong Motor company.
Source: MOSL
4 July 2016
20
Mahindra & Mahindra
EBITDA margin: Worst behind; should expand

Better mix, lower MTBL losses and operating leverage to offset cost
pressures
MMs EBITDA margin remained stable over FY14-16 (v/s 450bp increase for OEM
peers), despite one of the most favorable commodity cycle, impacted by internal
factors (mix, higher marketing spend, MTBL merger, negative operating leverage).
Most of these factors are now reversing. However, there are headwinds in the form of
exhaustion of Haridwar plant incentive since 4QFY16 and commodity price inflation.
Despite these headwinds, we expect EBITDA margin to expand by 80bp over FY16-18
to ~12.9% (based on IndAS), translating into EBITDA growth of ~21% CAGR over FY1618.
EBITDA margin reflects worst mix and negative operating leverage
MMs EBITDA margin remained stable over FY14-16 (v/s 450bp increase for
OEM peers), despite one of the most favorable commodity cycles, due to the
following:
Adverse mix (increasing share of auto segment)
Adverse product mix (no growth in UV2 segment)
Rising discounts/variable marketing spends to support volumes in both
Tractors and UVs, as well significant launches in FY16 in both businesses
Impact of MTBL (CV business) merger
Negative operating leverage
Further, with several new launches driving amortization higher, EBIT margin
declined ~100bp to 7.9% in FY16 (based on IndAS). As a result, PAT declined by
7.6% per year over FY14-16.
Exhibit 35: M&Ms EBITDA margins have remained stable
Exhibit 36: as against 450bp expansion in EBITDA margins

for its OEM peers over FY14-16
M&M (incl MVML)
OEM (ex M&M)

13.1
12.9
13.5
12.5
13.4
FY15
FY16
9.3
8.8
8.6
8.4
FY14
13.9
FY13
13.3
FY14
15.3
FY13
15.9
FY12
10.9
9.3
Source: MOSL
FY16
FY15
FY12
FY11
FY10
FY09
FY11
FY10
FY09
8.3
Source: MOSL
Margins to improve despite Haridwar impact and commodity inflation
MM would benefit from reversal of most of the above mentioned headwinds,

namely:
Mix normalizing, with faster growth in tractors, and recovery in UV2
segment and pick-ups.
Normalization of discounts/variable marketing spends in both tractors and
UVs.
Reduction in losses in MTBL driven by stronger growth in M&HCVs.
4 July 2016
21
Mahindra & Mahindra
Favorable operating leverage, driven by 14.5% volume CAGR over FY16-18

(v/s 4.6% decline per year over FY14-16).
We expect EBITDA margin to expand 80bp over FY16-18 to 12.9%, translating
into ~21% EBITDA CAGR over FY16-18.
Any benefit from mild hybrid launch could provide additional upside to our
estimates in the form of higher volumes and/or margins.
Exhibit 37: EBITDA margin to expand despite Haridwar impact and commodity inflation
0.5
0.5
0.3
0.4
0.75
12.9
FY18 Margins
Op. Leverage
Lower Mktg
Cost
Lower MTBL
losses
Mix
Haridwar
Impact
FY16 Margins
RM Cost
12.1
Source: MOSL
Exhibit 38: Revenue mix to improve in favor of Tractors

Auto
Farm Equipments
36
43
43
42
37
31
37
36
33
36
38
64
57
57
58
63
69
63
64
67
64
62
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
Source: MOSL
Exhibit 39: MTBL EBITDA losses to narrow, driven by CV cycle

MTBL EBITDA (INR m)
MTBL EBITDA losses (as % of M&M Revenues)
-1220
-1861
-2465
FY11
-0.1
-642
-862
FY12
FY13
-0.2
-0.3
-2128 -2244 -2121

FY14E FY15E FY16E FY17E FY18E
-0.5
FY11
FY12
-0.6
FY13
-0.5
-0.6
-0.5
FY14E FY15E FY16E FY17E FY18E
4 July 2016
22
Mahindra & Mahindra
Valuation and view: All stars aligning!

Expect 34% CAGR in consol. EPS; valuations attractive upgrading to Buy
Normal monsoon to favorably influence rural markets, which contribute over

70% of standalone PAT: The monsoon plays an important role in MMs fortunes,
not only for Tractors (~90% rural exposure) and Autos (~40% rural), but also for
key subsidiaries like MMFS (over 80% rural exposure). The rural market
contributes ~56% to revenue, 72% to standalone PAT and ~64% to SOTP value.
Expect double-digit growth in core businesses after four years: After a gap of
four years, both the businesses Tractors and UVs would be delivering
double-digit growth in FY17/18, driven by normal monsoon and benefit of
recent launches. We estimate 14% volume CAGR over FY16-18 as against flat
volumes over FY14-16.
Performance of key subsidiaries has bottomed out: MMFS is expected to return
to normalcy, with stabilization in asset quality and return to normal growth path
(~26% PAT CAGR over FY16-18 v/s 13% decline per year over FY14-16). Similarly,
the worst is over for TECHM, with early signs of growth visible in Telecom
segment, and restructuring of LCC largely completed.
Expect ~34% CAGR in consolidated EPS over FY16-18 v/s ~14% decline per year
over FY14-16: We expect standalone EPS to grow at a CAGR of ~23% over FY1618 (v/s 8% decline per year over FY14-16). However, stronger growth in
subsidiaries like MMFS and reduction in losses in Ssangyong would drive ~34%
consolidated EPS CAGR over FY16-18.
Upgrading to Buy on strong earnings growth, reasonable valuations: Our
apprehensions relating to growth in both core businesses since 3QFY15 has fully
played out. We now believe the worst is over for MM in both Tractors (driven by
normal monsoon) and UVs (driven by recent launches). The stock trades at 17.5x
FY18E standalone EPS, 15.3x FY18E consolidated EPS, and 5.2% FY18E FCF yield.
Considering the strong earnings cycle ahead, we upgrade the stock from Neutral
to Buy. Our SOTP-based target price is ~INR1,724 (16x FY18E core EPS +
subsidiaries at 20% HoldCo discount).
Exhibit 40: M&M: Sum-of-the-parts (INR/share)

Core EPS (excl. subsidiary dividend)
PE attributable (x)
Value of core business
Value of subsidiaries @ Hold Co discount
1. Tech Mahindra
2. M&M Financial Services
3. Mahindra Lifespaces
4. Mahindra Holidays
5. Ssangyong
6. Mahindra CIE
7. Others - Value per share of M&M
Target price (after 20% discount)
Upside (%)
FY17E
59.4
16
950
20
188
136
10
36
55
16
46
1,438
(1.9)
FY18E
77.3
16
1,236
188
136
10
36
55
16
46
1,724
17.7
Source: MOSL
4 July 2016
23
Mahindra & Mahindra
Max
4.5
3.0
1.5
2.6
0.7
Source: Bloomberg, MOSL
Jun-16
Jun-09
Jun-08
0.0
Jun-07
Jun-16
Jun-15
Jun-14
Jun-13
Jun-12
Jun-11
Jun-10
Jun-09
Jun-08
Jun-07
Jun-06
Jun-05
2.6
Jun-06
2.5
Jun-05
14
Miin
4.3
15.8
20.3
Median
Jun-15
22
-2
P/B (x)
6.0
Jun-14
Miin
Jun-13
Median
Jun-12
Max
Jun-11
P/E (x)
30
Exhibit 42: M&M Core PB (x) at LPA
Jun-10
Exhibit 41: M&M Core PE (x) at premium to LPA
Source: Bloomberg, MOSL
Exhibit 43: Comparative valuations

Auto OEM's
Bajaj Auto
Hero MotoCorp
TVS Motor
M&M
Maruti Suzuki
Tata Motors
Ashok Leyland
Eicher Motors
Auto Ancillaries
Bharat Forge
Exide Industries
Amara Raja Batteries
BOSCH
CMP
(INR)*
2,651
3,162
313
1,466
4,171
469
98
19,464
Rating
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
TP
(INR)
2,905
3,634
317
1,724
4,525
556
124
22,627
777
175
865
22,232
Buy
Buy
Buy
Buy
903
176
975
24,659
P/E (x)
FY17E FY18E
17.6
15.3
17.6
14.5
23.9
19.9
20.2
15.3
20.3
16.6
11.1
8.8
14.6
11.4
32.6
23.7
22.2
21.0
24.2
42.5
17.2
17.9
20.0
31.8
EV/EBITDA (x)
FY17E FY18E
11.4
10.0
11.4
9.6
14.3
12.0
15.8
12.9
10.2
8.7
3.9
3.3
8.0
6.4
19.0
15.2
12.2
13.4
15.0
27.5
10.0
11.4
12.5
23.2
RoE (%)
FY17E FY18E
32.7
32.2
40.9
40.8
28.7
27.8
15.8
18.0
19.2
20.3
16.4
17.6
30.8
31.4
39.7
40.1
21.0
14.4
25.9
18.4
23.1
15.0
25.4
21.2
RoCE (%)
EPS CAGR (%)
FY17E FY18E
FY16E-18E
31.6
31.0
7.2
39.9
40.0
18.1
29.7
29.3
31.5
13.2
15.2
23.4
25.8
27.2
27.4
12.4
13.2
20.2
22.6
25.3
48.3
31.7
33.8
32.0
14.0
14.9
24.5
26.3
16.6
15.6
24.3
28.3
26.6
15.5
23.0
32.8
Bull and bear case

Bull case
Normal monsoon supported by better agri-produce pricing would result in ~25%

CAGR in tractor volumes over FY16-18 (implying 6% CAGR over FY14-18).
Launch of mild hybrid would help UV2 segment, whereas pick-ups might benefit
from stronger economic recovery, in turn driving ~20% CAGR in UV volumes.
Strong tractor, UV2 and pick-up volumes should translate into ~150bp EBITDA
margin expansion.
This would result in 35%/44% CAGR in S/A EPS/Consol EPS to ~INR100/112 by
FY18.
Higher market share, better margins and capital efficiencies would drive rerating of the stock, without factoring in for benefit on non-core subsidiaries.
In bull case, we would value MM at 18x core EPS, resulting in a target price of
~INR2,167 (48% upside)
4 July 2016
24
Mahindra & Mahindra
Bear case
Weaker than normal monsoon with continued weakness in agri-produce pricing

would result in ~8% CAGR in tractor volumes over FY16-18.
Continued shift towards UV1 segment at the expense of UV2 segment coupled
with widening of pricing differential vis--vis other segments would result in
~10% CAGR in UV volumes over FY16-18.
Weaker tractor and UV volumes, coupled with adverse mix in UVs would impact
EBITDA margin. This coupled with higher than estimated commodity price
inflation would translate into ~50bp margin contraction.
This would result in 10%/21% CAGR in S/A EPS/Consol EPS to ~INR66/79 by
FY18.
In bear case, we would value M&M at 14x Core EPS, resulting in TP of ~INR1,329
(9% downside)
Exhibit 44: Scenario analysis suggests favorable risk-reward

Base Case
Volume Growth (%)
Tractors
UVs
Total Vol Growth (%)
EBITDA Margins (%)
RoE (%)
RoIC (%)
S/A EPS (Incl MVML)
Growth (%)
Consol EPS
Growth (%)
Core EPS
Growth (%)
SOTP
Core PE (x)
Core Value (INR/sh)
Value of Subs (INR/sh)
TP (INR/sh)
Upside (%)
Bull Case
FY17E
FY18E
Bear Case
FY17E
FY18E
FY16
FY17E
FY18E
-8.7
6.7
1.3
12.1
15.2
28.8
55.0
4.2
53.6
12.1
49.9
3.6
22.0
13.0
15.2
12.4
15.8
28.0
65.0
18.1
72.6
35.5
59.4
19.0
15.0
12.0
12.8
12.9
18.0
33.2
83.7
28.8
95.8
32.0
77.3
30.1
30.0
20.0
22.0
13.0
17.3
31.4
73.0
32.6
80.6
50.4
67.4
34.9
20.0
20.0
19.1
13.7
20.2
38.9
99.7
36.6
111.6
38.5
93.2
38.4
6.0
15.0
11.7
11.4
14.1
24.3
57.2
4.0
64.8
21.0
51.6
3.3
10.0
6.0
7.6
11.4
15.2
26.3
66.4
16.1
78.6
21.3
60.0
16.2
16
950
488
1,438
-1.9
16
1,236
488
1,724
17.7
18
1,212
488
1,700
16.0
18
1,678
488
2,166
47.8
14
722
488
1,210
-17.4
14
839
488
1,327
-9.4
Source: MOSL
4 July 2016
25
Mahindra & Mahindra
SWOT Analysis
Deep connect in rural

markets with presence
across value chain
Singular focus on UVs,
with strong brands
like Scorpio &
XUV5OO
Strong positioning in
SCVs
Low product
development cost in
UVs
Perception of weaker
product quality than
peers in UVs
Weaker positioning
in fast growing
compact SUVs
Apart for few noncore subs, most of
the subs are yet to
contribute materially
Of all the SUV
models, it has just
petrol offering in
KUV1OO
Mild hybrid for larger

SUVs could drive down
cost to consumers by
~13.5%
To own micro-SUV
segment with KUV1OO,
which can expand
addressable market by
1.8x
Grow exponentially in
nascent farm implement
business, with help of
global alliance
Ramp-up international
presence in both tractors
and UVs
4 July 2016
Adverse regulatory
noises against large
diesel vehicles
Widening of pricing
gap vis--vis peers
under GST
Increasing acceptance
of fleet taxis (like Uber)
might reduce demand
for personal PVs
Continued investments
in non-core subs and
M&A might impact
medium term capital
efficiencies
26
Mahindra & Mahindra
Operating metrics
Exhibit 45: Snapshot of Revenue model
000 units
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
Tractors
214
235
224
268
234
214
261
300
Growth (%)
22.3
10.2
-4.9
19.5
-12.6
-8.7
22.0
15.0
% of total volumes
36.2
32.6
29.0
34.9
33.5
30.2
32.4
33.0
UVs
292
384
470
428
398
424
480
537
Growth (%)
22.8
31.6
22.4
-8.9
-7.2
6.7
13.0
12.0
11
14
12
10
12.7
24.8
-13.9
-31.4
-34.7
30.0
25.0
25.0
62
67
66
63
57
55
57
61
LCVs (MTBL)
Growth (%)
3-Ws
39.8
8.5
-2.9
-3.4
-10.3
-3.0
4.0
6.0
Verito
11
18
16
Growth (%)
0.0
61.2
-12.2
-48.0
-80.5
62.5
0.0
0.0
Growth (%)
0.0
0.0
-14.9
-34.2
-3.9
15.0
0.0
0.0
Total Autos
376
487
548
500
465
494
545
608
Growth (%)
25.1
27.5
17.7
-8.8
-7.0
6.3
10.3
11.6
% of total volumes
63.8
67.4
71.0
65.1
66.5
69.8
67.6
67.0
Growth (%)
M&HCVs (MTBL)
Total volumes
590
722
772
767
699
708
805
907
Growth (%)
24.9
21.9
9.5
-1.2
-10.2
1.3
15.2
12.8
ASP (INR '000/Unit)
391
437
507
514
542
571
571
588
Growth (%)
2.3
11.8
16.1
1.4
5.5
5.3
0.0
3.0
Net Sales (INR b)
230
314
399
400
379
404
465
541
Growth (%)
27.8
36.2
27.1
0.2
-5.2
6.6
15.2
16.2
4 July 2016
27
Mahindra & Mahindra
Story in charts: New launches to watch out for

Exhibit 47: New product launches to drive UV CAGR of
~12.5%
UVs (incl pick-ups)
31.6
22.4
FY18E
FY12
FY13
(7.2)
FY14
FY15
FY16
Exhibit 48: New launches at lower ASP to keep realization

growth stagnant
Exhibit 49: Margins to improve in the near term
587,950
570,825
570,825
542,238
513,843
506,863
436,754
390,631
381,748
362,523
12.4
12.1
12.1
11.5
Exhibit 50: Capital efficiency has weakened
FY12
FY13
FY14
FY15
FY16
CFO
RoIC (%)
28
18.0
33.2
FY18E
FY17E
15.8
28.0
15.2
28.8
FY16
16.9
35.1
FY15
23.6
55.6
FY14E
24.3
72.5
14
FY13
87.6
24.9
FY12
106.8
28.4
FY11
79.3
FY18E
Exhibit 51: FCF to improve despite high capex plans
28.4
FY10
FY17E
42.4
25.8
12.9
12.4
12.3
17.7
31.8
FY18E
EBITDA (incl. MVML) (%)
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
FY09
FY17E
Net realizations (INR/unit)
RoE (%)
12.0
537,136
FY17E
(8.9)
13.0
479,586
FY16
6.7
424,412
FY15
299,668
FY14
260,581
FY13
213,591
FY12
(8.7)
234,025
(4.9)
267,634
(12.6)
235,375
223,882
19.5
384,281
15.0
10.2
Growth (%)
397,586
Growth (%)
22.0
470,301
Tractor volumes (units)
428,258
Exhibit 46: Tractors to see strong growth in FY17-18
(13)
FY12
37.8
Capex
35.6
27
11
(14)
FY13
(10)
FY14E
FCF
45.8
28
20
(21)
FY15
53.0
(25)
FY16
4 July 2016
60.6
36
(25)
(25)
FY17E
FY18E
28
Mahindra & Mahindra
Financials and Valuations

Income Statement (Based on Ind-AS)
Y/E March
Gross Op. Income
Change (%)
Total Expenditure
EBITDA
Margins (%)
Margins (%, incl MVML)
Depreciation
EBIT
Deferred Revenue Exp.
Int. & Finance Charges
Other Income
Non-recurring Expense
Non-recurring Income
Profit before Tax
Tax
Eff. Tax Rate (%)
Profit after Tax
Change (%)
% of Net Sales
Adj. Profit after Tax
Change (%)
Adj. PAT (incl MVML)
Balance Sheet
(INR Million)
2013
434,127
26.4
387,034
47,093
10.8
12.4
7,108
39,985
0
1,912
5,177
0
906
44,156
10,943
24.8
33,214
15.4
7.7
32,532
16.5
35,438
2014
431,202
-0.7
383,990
47,212
10.9
12.3
8,633
38,579
0
2,592
7,180
0
528
43,694
6,111
14.0
37,584
13.2
8.7
37,129
14.1
38,605
2015
406,325
-5.8
364,591
41,734
10.3
11.5
9,749
31,985
0
2,143
8,489
0
3,357
41,689
8,478
20.3
33,211
-11.6
8.2
30,537
(17.8)
31,595
2016
436,066
7.3
390,364
45,702
10.5
12.1
11,086
34,616
0
1,553
8,549
0
687
42,299
10,624
25.1
31,675
-4.6
7.3
31,160
2.0
32,935
2017E
505,987
16.0
450,901
55,087
10.9
12.4
13,449
41,638
0
1,389
9,603
0
0
49,852
13,460
27.0
36,392
14.9
7.2
36,392
16.8
38,909
2018E
586,381
15.9
519,107
67,273
11.5
12.9
14,869
52,404
0
1,328
11,356
0
0
62,433
15,608
25.0
46,824
28.7
8.0
46,824
28.7
50,114
(INR Million)
Y/E March
Sources of Funds
Share Capital
Reserves
Net Worth
Deferred tax
Loans
Capital Employed
2013
2014
2015
2016
2017E
2018E
2,952
143,638
146,589
6,149
42,792
195,530
2,952
164,961
167,912
8,897
48,787
225,596
2,957
189,594
192,551
9,797
46,615
248,963
2,963
214,109
217,072
12,475
40,861
270,408
2,963
240,130
243,093
12,475
40,861
296,429
2,963
275,101
278,064
12,475
40,861
331,401
Application of Funds
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Curr.Assets, L & Adv.
Inventory
Inventory Days
Sundry Debtors
Debtor Days
Cash & Bank Bal.
Loans & Advances
Others
Current Liab. & Prov.
Sundry Creditors
Creditor Days
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
89,500
41,287
48,213
10,000
118,335
97,988
24,198
22
22,084
20
17,814
28,509
5,384
79,006
55,797
51
4,154
19,055
18,982
195,530
(0)
107,961
49,192
58,770
12,284
113,799
128,034
28,036
26
25,098
23
29,504
39,640
5,756
87,291
60,688
55
5,863
20,740
40,743
225,596
117,385
58,091
59,295
21,788
131,382
116,985
24,376
23
25,580
25
20,648
40,054
6,328
80,486
53,655
52
6,143
20,688
36,499
248,963
156,860
69,177
87,684
7,500
135,204
133,736
26,879
24
25,121
23
22,970
52,367
6,399
93,715
67,636
61
5,964
20,115
40,021
270,408
179,360
82,625
96,735
10,000
142,311
146,782
32,219
25
30,930
24
32,127
45,107
6,399
99,399
67,660
53
5,964
25,775
47,383
296,429
204,360
97,495
106,866
10,000
149,811
179,117
37,389
25
35,894
24
47,090
52,345
6,399
114,393
78,518
53
5,964
29,912
64,724
331,401
(0)
(0)
4 July 2016
29
Mahindra & Mahindra
Financials and Valuations

Ratios
Y/E March
Basic (INR)
Fully diluted EPS
FD EPS (incl MVML)
Consolidated EPS
Cash EPS
Book Value per Share
DPS
Payout (Incl. Div. Tax) %
2013
2014
2015
2016
2017E
2018E
54.3
59.2
60.9
67.2
248.3
13.0
26.8
62.0
64.5
72.7
77.5
284.4
14.0
25.7
51.0
52.8
47.8
68.1
325.6
12.0
25.5
52.1
55.0
53.6
71.3
366.3
15.0
32.6
60.8
65.0
72.6
84.1
410.2
17.5
33.1
78.2
83.7
95.8
104.1
469.2
20.0
29.4
27.8
30.6
21.5
20.8
2.3
4.5
0.8
26.6
27.4
20.6
18.8
2.1
4.0
1.0
22.5
20.2
17.4
15.5
1.8
3.6
1.2
17.5
15.3
14.1
12.4
1.5
3.1
1.4
Valuation (x)
P/E
Consolidated P/E
Cash P/E
EV/EBITDA
EV/Sales
Price to Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
ROIC
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors (Days)
Working Capital (Days)
Asset Turnover (x)
24.3
19.2
72.5
23.6
18.7
55.6
16.9
13.6
35.1
15.2
12.4
28.8
15.8
13.2
28.0
18.0
15.2
33.2
20
22
51
17
2.0
23
26
55
37
1.8
25
23
52
35
1.5
23
24
61
36
1.5
24
25
53
37
1.6
24
25
53
44
1.6
0.3
0.3
0.2
0.2
0.2
0.1
2013
43,565
-2,043
7,108
-8,732
1,559
41,457
906
42,363
2014
43,166
-3,455
8,633
-8,942
-2,126
37,277
528
37,805
2015
38,332
-3,723
-9,749
-8,468
15,802
32,195
3,357
35,552
2016
34,616
8,549
11,086
-7,946
-1,199
45,106
687
45,793
2017E
41,638
9,603
13,449
-13,460
1,795
53,025
0
53,025
2018E
52,404
11,356
14,869
-15,608
-2,378
60,643
0
60,643
(Inc)/Dec in FA+CWIP
Free Cash Flow
(Pur)/Sale of Invest.
CF from Inv. Activity
-13,893
27,564
-9,416
-23,309
-10,053
27,224
-7,295
-17,348
-21,366
10,829
-4,005
-25,371
-25,188
19,918
-3,822
-29,010
-25,000
28,025
-7,107
-32,107
-25,000
35,643
-7,500
-32,500
Change in Net Worth

Inc/(Dec) in Debt
Interest Paid
Dividends Paid
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Beginning Balance
Closing Balance
0
-1,534
-2,015
-8,670
-12,219
5,930
11,884
17,814
1,839
1,465
-2,608
-8,935
-8,239
11,689
17,814
29,504
26
-3,847
-2,419
-9,609
-15,848
-9,024
29,504
20,648
3,176
-5,754
-1,553
-10,492
-14,622
1,474
20,648
22,289
1,680
0
-1,389
-10,539
-10,248
10,669
22,970
33,807
1,920
0
-1,328
-12,021
-11,429
16,715
32,127
49,010
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Int./Dividends Received
Depreciation & Amort.
Direct Taxes Paid
(Inc)/Dec in Wkg. Capital
CF from Oper.Activity
Extra-ordinary Items
CF after EO Items
4 July 2016
(INR Million)
30
AUTO GALLERY
COMPANIES
COMPANIES
SECTOR UPDATES

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Mahindra
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Detailed Report | 4 July 2016

Mahindra & Mahindra

All stars aligning!

Mahindra & Mahindra

Mahindra & Mahindra: All stars aligning!

Mahindra & Mahindra

Motilal Oswal values your

Expect 34% EPS CAGR, valuations reasonable upgrading to Buy

Financial Snapshot (INR b)

All stars aligning!

TP: INR1,724 (+18%)

Mahindra & Mahindra

Both core businesses back on growth path after four years

Rural India accounted for

Rural India to account for 68%

Urban, 44% Rural, 72%

Target of doubling farm income in five years to be driven by six initiatives

100% FDI in Food

Will carry crop-wise

Envisages real-time electronic

Soil Health Card

Minimum Premium, Maximum

Mahindra & Mahindra

Implements business accounts for miniscule ~2% of FES

Vols of cars priced at

Mahindra & Mahindra

All stars aligning!

Exhibit 2: Long-term trend in monsoon on pan-India basis, including FY17 estimates

Exhibit 3: Normal monsoon augurs well for MM, given

Exhibit 4: Rural India accounted for ~72% PAT share in FY16

Mahindra & Mahindra

Exhibit 6: Everything falling in place

Vol. Growth (%)

UV2 Ind Gr (%)

41% (-11.6pp since FY13)

16% (-140 bp since FY14)

Vol. Growth (%)

10% (-180 bp since FY13)

Slower rural economy in last two years

Weakness in telecom segment revenues

Market Share (%) 77% (+470bp since FY14)

AUM Growth (%)

Credit Costs (%)

PAT Growth (%)

Two consecutive monsoons resulted in ~9%

Deal wins at USD250300m/qtr, but skewed

Mahindra & Mahindra

Normal monsoon, low base to drive growth for tractors

Normal monsoon could reverse sentiment and spur growth

Mahindra & Mahindra

Linear (Industry vols ('000 units))

Infrastructure segment recovery to also boost tractor volumes

Exhibit 10: Trend in total rural roads awarded

Exhibit 11: Trend in length of national highways completed

Mahindra & Mahindra

Availability of finance a key demand driver; NPAs to decline

Exhibit 12: NPAs in agriculture sector to decline as farm incomes improve

Ratio of gross NPA to agriculture loans o/s

GNPA (% of Total Assets)

Source: Company, MOSL

NNPA (% of Total Assets)

Growth (%) - RHS

Exhibit 14: also reflecting in asset quality stabilization