M & M

Motilal Oswal maintains its 'Buy' rating on Mahindra & Mahindra. M&M had earlier mentioned in its post-2 QFY09 results that it would be reviewing the Rs7,000-crore capex plan over FY09-12 for a possible reduction . After a review of the capex plans, management has now decided to go ahead with the original capex plan of Rs 7,000 crore without any cuts. Out of the Rs 7,000 crore over FY09-12 , Rs 5,000 crore will be invested in the automotive business and Rs 2,000 crore in the non-auto business. In auto business, investment will be made in the Chakan plant (~ Rs2,500 crore), product development (Rs 2,000 crore for Xylo, Scorpio's successor, light transport vehicles and lobal product) and further equity contribution in Mahindra Navistar JV (Rs 350 crore). In the non-auto business, it is investing Rs 500 crore in tractors business, Rs 700 crore in logistics business and defence business and Rs 750 crore for setting up world-class research facility at Chennai. Motilal Oswal has downgraded the consolidated earnings estimates by 11.7% for FY09 to Rs 58.7 and by 12.9% for FY10 to Rs 70.6, to factor in lower volumes and downgrade in subsidiary / associate earnings. Notwithstanding short-term challenges, valuations at 4.6x FY09E and 3.9x FY10E consolidated EPS are attractive.
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