ShareKhan Investor's Eye

STOCK UPDATE

Mahindra & Mahindra
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,050
Current market price: Rs711

Logan unveiled

Key points

* Mahindra Renault has made the much-awaited launch of its passenger car Logan. Three variants of the car have been launched—two in the petrol segment and one in the diesel segment.
* The vehicle has been priced aggressively as its petrol version is priced between 4.28 lakh and 5.69 lakh, and its diesel version is priced between Rs5.47 lakh and Rs6.44 lakh.
* Currently, the vehicle is being manufactured at the company's Nasik plant. With the setting up of a new greenfield plant near Chennai by mid-2009, the capacity would be scaled up by 300,000 units. Also, the localisation content would improve from 50% currently to about 80-90%.
* We expect the car to do well in the Indian markets, mainly on account of its pricing. We expect the launch of Logan to have a negative impact on models like Maruti's Esteem, Tata Motors' Indigo, and Hyundai's Getz. The launch of the passenger cars also further diversifies M&M's business model.
* At the current market price of Rs711, the stock discounts its FY2008E consolidated earnings by 10.4x. We maintain our Buy recommendation on the stock with a price target of Rs1,050.