M&M, with a major rural presence, is expected to benefit from strong monsoons this year. New product launches in the automobile segment would help it record 20.8% and 13.2% growth in FY11 and FY12 respectively. The tractor segment too is expected to grow 10.3% in FY11 on increased demand from the construction and infrastructure sectors.

What will move the stock?
1) Korea's Ssangyong has selected M&M as a preferred bidder. The acquisition would provide M&M a 2-3 year leap in terms of product development. The transaction is expected to be completed over the next two quarters and financial details are awaited. 2) Production for the JV with Navistar has begun at the Chakan plant.

3) M&M has received EPA approval for launch in the US. 3) There is strong demand for small commercial vehicles (SCVs), the fastest-growing CV segment, which M&M recently entered into with the launch of Maximmo and Gio. 4) The company is expected to roll out expansion plans to ramp up capacity given current growth in the tractor segment.

Where are we stacked versus consensus? We expect EPS of Rs41.3 and Rs45.5 in FY11 and FY12 respectively. Our FY11 earnings estimate is 3.8% lower than consensus estimate of Rs42.9. We value M&M using SOTP at a revised price target of Rs894, discounting the standalone business at 15x FY12E earnings.

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