With a significant rural presence, M&M would benefit from strong monsoons this year. The automobile segment is expected to record growth of 22.4% in FY11 and 13.2% in FY12, led by new product launches. The tractor segment too would grow 15.8% in FY11, underpinned by higher crop output.

The creditors for Ssangyong have approved M&M's offer of taking a haircut of USD100mn. M&M has made the balance 90% payment for 70% ownership stake. The acquisition would enable the company to make a 2-3 year leap in terms of product development. Two SUVs from Ssangyong Motors' portfolio (Rexton and Korando) would be assembled at M&M's Chakan facility.

Production and marketing has begun of MHCVs in a JV with Navistar. M&M is currently in the roll-out phase and is increasing its geographical spread.

M&M launched the Genio pickup in Jan'11 which would help it expand its pickup portfolio. A new SUV is expected to be launched by the year end. 3) Demand for small commercial vehicles (SCVs), the fastest-growing CV segment, is strong; M&M recently entered this space with the launch of Maximmo and Gio. The company is expected to roll out capacity expansion plans considering current growth in the tractor segment.

We expect EPS of Rs44.1 and Rs48.0 in FY11 and FY12 respectively. Our FY12 earnings estimate is 1.6% lower than consensus estimate of Rs48.8. We value M&M using SOTP at Rs883, discounting the standalone business at 15x FY12E earnings.

1) Steep raw material price increases and M&M's inability to pass them on to customers; 2) Increased competition in the UV segment on new launches affecting market share; and 3) Litigation with Global Vehicles Distributor, USA.