PINC Research has maintained buy rating on Mahindra & Mahindra Ltd (M&M) stock with a price target of Rs 872 in its report dated Dec 15, 2010.

As per reports, M&M, with significant rural presence, is expected to benefit from strong monsoons this year. The automobile segment is expected to grow 20.8% and 13.2% in FY11 and FY12 respectively, on new product launches. The tractor segment too is expected to grow 10.3% in FY11, due to higher crop output.

What will move the stock?

1) M&M acquired Ssangyong, Korea. This acquisition would provide it a 2-3 year leap in terms of product development. The transaction is expected to be completed by year-end. Two SUVs from Ssangyong's portfolio (Rexton and Korando) would be assembled at M&M's Chakan facility.
2) Production for the JV with Navistar began at the Chakan plant.
3) M&M received EPA approval for launch in the US.
4) Demand appears strong for small commercial vehicles (SCVs), the fastest-growing CV segment, which M&M entered into recently with the launch of Maximmo and Gio.
5) The company is expected to roll out expansion plans to ramp up capacity given current growth in the tractor segment.

PINC Research expects EPS of Rs 41.3 and Rs 45.5 in FY11 and FY12 respectively.

Its FY11 earnings estimate is 8.2% lower than consensus expectation of Rs 44.9.

Steep raw material price increases and M&M's inability to pass it on to customers; increased competition in the UV segment on new launches affecting market share; and litigation with Global Vehicles Distributor, USA will challenge the target price.