Trip To India's Village - Agro-Mechanization - by Aditya Makharia

Asia Pacific Equity Research
01 September 2010
India Automobile
'Labor Pains' - Growing mechanization of Agriculture
• We visited key agricultural producing zones across India to review the India
changing agricultural practices. Our findings indicate agriculture is getting Automobile Manufacture
increasingly mechanized, given a) diversification of migrant labor to ‘non AC
Aditya Makharia
farm’ activities, b) rising farm incomes, c) supportive government policies, (91-22) 6157-3596
which are important 'catalysts' for driving sales of tractors/agri equipment. We aditya.s.makharia@jpmchase.com
found growing opportunity for equipment sales at small farm level (2-5 acres
Bharat Iyer
farms). We expect tractor industry sales to grow at 12% CAGR over FY10-12 (91-22) 6157-3600
and re-iterate OW on Mahindra & Mahindra. bharat.x.iyer@jpmorgan.com
• NREGA/alternate jobs leading to ‘non–farm’ employment J.P. Morgan India Private Limited
diversification… Govt’s successful implementation of NREGA and growing
alternate ‘labor intensive’ activities like rising industrialization in urban VST Tillers Tractors – sales of tillers (in
centers is providing migrant labor with options to move away from ‘fields’. As unit nos)
per official data, NREGA provides employment to over 45m households (up 25,000
19,068
from 21m households in FY07). At the national level, average daily wages 20,000 16,691
paid under NREGA increased by 35% over FY07-10, this rate now serves as a 15,000 12,174
10,510
benchmark across rural India. As a farmer in the south highlighted, “the 10,000 7,625 8,489
young laborers are moving to cities, while older members are taking to 5,000
NREGA”.
-
• … Driving even small farms to mechanize: We were surprised to find even FY05 FY06 FY07 FY08 FY09 FY10
smaller farmers increasingly utilizing equipment to substitute manual labor.
Source: Company Reports
VST Tillers Tractors Ltd, which manufactures tillers and sub 20 HP tractors,
highlighted sales have doubled in three years. “We expect the industry size for
Number of households provided
tillers to double from c.45,000 units currently over the next few years". employment under NREGA
Identifying growth opportunities in this segment, Mahindra & Mahindra has (in million households)
launched the ‘15 HP small tractor – Yuvraj’. 50 45 46
•
40 34
Govt policies/financing are catalysts: Sale of equipment is dependent on 30
21
govt support and availability of finance. Sales of tillers, for e.g., are driven by 20
10
subsidies (government funds Rs50,000, c.1/3rd the value of tiller). Ease of 0
availability of financing, i.e. collateral terms against agricultural loans (in FY07 FY08 FY09 FY10E
certain areas banks have lowered land holding terms for providing collateral), Source: Ministry of rural development
willingness of banks to lend and interest rates are important factors that
determine disbursal of credit.
India Autos: valuations
Rec Year PE (x) Cash PE EV/EBITDA ROE(%)
Bajaj Auto N FY11E 16.8 15.8 11.1 52.7
FY12E 15.1 14.2 9.6 42.6
Hero Honda UW FY11E 15.3 14.0 11.0 44.9
FY12E 13.6 12.5 9.2 37.1
Maruti Udyog N FY11E 15.9 11.2 9.8 16.6
FY12E 13.5 9.5 8.2 16.5
Mahindra & Mahindra OW FY11E 14.7 12.5 11.8 25.5
FY12E 13.1 11.0 10.5 23.2
Tata Motors OW FY11E 31.5 19.0 14.7 11.0
FY12E 25.9 16.0 12.7 12.5
Ashok Leyland UW FY11E 17.4 12.0 12.1 14.2
FY12E 14.3 10.2 10.4 15.7
Source: J.P. Morgan estimates.
See page 15 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Aditya Makharia Asia Pacific Equity Research
(91-22) 6157-3596 01 September 2010
aditya.s.makharia@jpmchase.com
We visited the key agricultural producing zones across India to review the changing
agricultural practices. Our findings indicate that agriculture is getting increasingly
mechanized given a) the diversification of migrant labor to ‘non farm’ activities; b)
rising farm incomes; c) supportive government policies, which are important
'catalysts' for driving sales of tractors/agri equipment. We found that there are
growing opportunities for equipment sales at the small farm level (2-5 acres farms).
Diversification of ‘labor’ to non-farm activities

NREGA has impacted availability of ‘migrant’ labor for agriculture: The
successful implementation of (National Rural Employment Guarantee Act) NREGA
by the government is providing laborers with options to migrate away from fields.
The NREGA Act provides for 100 days of employment a year for all households in
rural areas. As per official data, the scheme now provides employment to over 45m
households (up from 21m households in FY07). The families that have benefited
from this scheme are migrant laborers that are primarily engaged in the agricultural
sector.
Figure 1: Number of households that are provided employment under NREGA (in million
households)
50 45
40 34
30
21
Our interaction with farmers 20

across India as well as several
10
studies conducted on the impact
of NREGA indicate that the
people that primarily work in 0
agriculture have benefited from FY07 FY08 FY09
this scheme
Source: Ministry of Rural Development
Figure 2: Employment created in number of person days per year under NREGA (in million
person days)
2,500 2,163
2,000
1,436
1,500
905
1,000
500
-
FY07 FY08 FY09
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(91-22) 6157-3596 01 September 2010
Higher pay under NREGA has resulted in wage inflation for agriculture related
activities: Based on official statistics, the daily wage rate under NREGA has
increased from Rs65 in FY07 to Rs89 in FY10 (+35%). Given that the migrant labor
pool is primarily benefiting from the government scheme, wage rates for agricultural
activities have been rising.
Figure 3: Average Daily Wage under NREGA (in INR)

100
89
90
80
70 65
60
50
FY07 FY10
Quote from farmers in Haryana:

The labor cost has increased Figure 4: J.P. Morgan Team in conversation with farmers in northern India
considerably. Sometimes, even
though we pay higher wages,
labor is not available. The influx
of migrant labor has reduced.
Source: J.P. Morgan
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(91-22) 6157-3596 01 September 2010
Growing industrialization/alternate jobs is also leading to diversification from

farm sector: Our interaction with farmers indicated that labor is also increasingly
migrating to the urban centers, given rising industrialization as well as growing road
construction activities. In their view, working for agriculture is seen as a ‘low
paying occupation’ thus the current generation is looking to diversify away from
agriculture.
Changing lifestyles/diversification: We found that in farm households, the second

generation is keen to migrate to cities as they want to diversify away from
agriculture. Thus, while the elders are cultivating the fields, the children are pursuing
opportunities in cities.
Quote from a large farmer – “My Figure 5: J.P. Morgan in conversation with mandi agents / farmers in Uttar Pradesh
sons are currently working in
USA in the IT industry. Children
are migrating to the cities for
better lifestyles, exposure,
opportunities.”
Source: J.P. Morgan
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(91-22) 6157-3596 01 September 2010
Tractors sales in India:

Low penetration levels: Tractor penetration in India is significantly below the
global average at around 13 tractors per 1,000 hectares as against the global average
of 19 and the US average of 29.
Figure 6: Tractor Penetration in India
Source: Mahindra & Mahindra
Tractor sales in India crossed the record level of 400,000 units in FY10 (+32% yoy)
We believe that demand for tractors is being driven by labor shortages, rising farm
incomes, improving irrigation facilities, mechanization benefits, higher land values,
increased agricultural credit availability as well as healthy monsoons. We expect
tractor sales to grow at over 12% CAGR over FY10-12E.
Figure 7: Tractor sales in India (in unit nos)
Source: Mahindra & Mahindra
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(91-22) 6157-3596 01 September 2010
Demand is also rising for smaller powered equipment including tillers / sub 20HP
tractors.
Figure 8: Sales of power Tillers at VST Tractors and Tillers

25,000
+20% CAGR
19,068
20,000 16,691
15,000 12,174
10,510
7,625 8,489
10,000
5,000
-
FY05 FY06 FY07 FY08 FY09 FY10
Source: Company
Quote from a tractor dealer in

Western UP: “Last year, we sold
Figure 9: J.P. Morgan analyst in conversation with a tractor dealer
1,400 tractors. This year, we are
looking at selling 2,000 units.
The penetration of tractors in my
area would be c.10%.”
Source: J.P. Morgan
6
(91-22) 6157-3596 01 September 2010
Rising farm incomes: In the current year, agricultural production is likely to grow
driven by higher sowing activities given normal monsoons. This, coupled with higher
minimum support prices, should drive higher agricultural incomes in the year.
Table 1: Progress of Kharif sowing (in lakh hectares)
2010 2009 % Ch
Rice 274 251 9%
Coarse Cerial 194 174 11%
Oilseeds 158 153 3%
Pulses 103 86 20%
Sugarcane 48 42 14%
Jute 8 7 9%
Cotton 105 95 11%
Source: Times of India
Improving irrigation facilities: Besides canal irrigation and ground water irrigation,
we came across growing use of drip irrigation, which has improved farm yields by
over 30%. This form of irrigation is prevalent in southern/western India.
Figure 10: Drip Irrigation plant set up in a field in Tamil Nadu
Source: J.P. Morgan
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(91-22) 6157-3596 01 September 2010
VST Tillers Tractors Ltd – Benefiting from

‘small equipment sales’ (Not Rated)
NOTE: THIS DOCUMENT IS
INTENDED AS INFORMATION ONLY During our visit to rural India, we came across the usage of sub 20 HP
AND NOT AS A RECOMMENDATION tractors/tillers that are used by small farmers (that have land holdings below 5
FOR ANY STOCK. IT CONTAINS acres). We subsequently met with the manufacturer of these equipment, VST
FACTUAL INFORMATION, OBTAINED Tillers Tractors Ltd. (VSTT.IN). We believe that there is strong growth potential
BY THE ANALYST DURING for sale of mechanized implements in the small farm holders category.
MEETINGS WITH MANAGEMENT. J.P.
MORGAN DOES NOT COVER THIS Figure 11: Sales of Tillers at VST (in unit nos)
COMPANY AND HAS NO RATING ON 25,000
THE STOCK. +20% CAGR
19,068
20,000 16,691
15,000 12,174
10,510
7,625 8,489
10,000
5,000
-
Over the year, the management Figure 12: A farmer using a tiller
is guiding for growth rates of
c.15-20% for tillers.
Source: VST Tillers Tractors Ltd
Industry growth potential: The company’s sales have doubled in the past three years
(off a low base). Management highlighted that the current industry size for tillers is
at 45,000 units and they expect the segment volumes to reach 100,000 units over the
next few years. Currently, VST is the industry leader with sales of c.19,000 units
(market share of c.42%), followed by Chinese imports at c.13,000 units (market
share of c.30%).
8
(91-22) 6157-3596 01 September 2010
Management comments: Sales Demand Drivers: Sales are being driven by the diversification of labor as highlighted
of tillers have doubled over the earlier. Further, the hike in MSPs by the government has led to growing farm
past 3 years. They expect
segment volumes will reach
income. Government subsidies are the ‘catalyst’: The government provides a subsidy
100,000 units (from 45,000 of Rs50,000 on these machines as a support to the small/marginal farmer. (The tillers
currently). typically cost between Rs130,000 – Rs150,000). This has driven tiller sales to double
over FY07-10.
Risks to the segment: A risk to the growth of this segment is any adverse change to
the government subsidy program. However, management believes that over the near
term, there does not appear to be a risk from the same.
Small tractor segment: The sub 20HP tractor segment is currently a niche segment
with limited volumes. The tractor finds application in small farms and in wine yards,
cotton and sugarcane fields where the gap between plants is 4 feet. These tractors,
being compact in size, can push through the narrow paths. The company primarily
sells its products in western and southern India. (In India, the 31-40HP segment is
the dominant segment, which comprises of c.45% of total volumes followed by the
41-50HP segment, which accounts for c.25% of the industry volumes).
VST sold c.3,700 units last fiscal of their tractors. However, management expects
tractor volumes to reach 10,000 units over the next 3 years. They believe that this
segment can witness strong growth over the medium term.
Figure 13: Sales of sub 20HP tractors at VST

4,000 3,758
+32% CAGR
3,000
2,327
1,714
2,000 1,537
1,249
933
1,000
-
They rely on local micro finance Financing is a challenge: While the large PSU banks refrain from financing farmers
institutions for funding the that have land holdings of below 5 acres, the role of co operative/local micro finance
tractors
institutions is paramount for these activities.
Competition: As per management, competition in this segment is limited. Mahindra

& Mahindra has recently entered this segment with the 'Yuvraj', which is a single
cylinder 15 HP tractor priced at Rs1,75,000. As per M&M management, the product
is targeted at farmers with small landholdings of between 2 to 5 acres of land, who
primarily are dependent on farming with bullocks or power tillers and seek to
increase productivity at an affordable cost. The tractor is also apt for farmers who
require an additional tractor for specific applications like inter-culture, power
generation or water pumping. Vegetable farmers, as well as those who own orchards
or cultivate cash crops can also benefit from the Yuvraj’s strong value proposition.
9
(91-22) 6157-3596 01 September 2010
The Yuvraj 215 will be manufactured in Rajkot with a production capacity of 16,000
tractors per annum. M&M has entered into a contract manufacturing agreement with
Deepak Diesels Pvt. Ltd. (DDPL), which will exclusively manufacture the Yuvraj for
M&M.
Figure 14: An advertisement for the Mahindra & Mahindra small tractor ‘Yuvraj’
Source: Company Presentation
Brief profile of VST Tillers Tractors Ltd: VST Tillers has a current turnover of
c.Rs.3.5B as of FY10, with tillers accounting for c.60% of turnover. The company
primarily operates in the southern and western markets in India.
Figure 15: VST Tillers Tractors Sales Break down in FY10 (in Rs. M)
Others, 514 , 15%
Tractors, 811 , 24%
Tillers, 2,120 , 61%
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(91-22) 6157-3596 01 September 2010
Healthy financial performance: The company has reported healthy sales growth of
28% CAGR over FY07-10. The EBITDA margins are upwards of 15%, given
growing demand for its products. Profits have grown at 50% CAGR over this period
driven by strong volume growth as well as rising profitability.
Table 2: VST Tillers Tractors Ltd Financial Snapshot (VSTT.IN)

Rs. in million, ye March FY07 FY08 FY09 FY10
Sales 1,644 1,914 2,741 3,445
% Change 25% 16% 43% 26%
EBITDA 228 257 475 651

Margin (%) 13.9% 13.4% 17.3% 18.9%
PAT 125.5 144 289 423

% Change 69% 15% 101% 46%
Source: Company, J.P. Morgan
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(91-22) 6157-3596 01 September 2010
Mahindra and Mahindra Ltd. Overweight

Price: Rs.628
Price Target: Rs. 729
www.mahindra.com
Company description India

Mahindra & Mahindra (M&M) is the leading manufacturer of utility vehicles Automobile Manufacture
and tractors in India. Management is diversifying the product base to include Aditya MakhariaAC
light trucks and heavy commercial vehicles. It has set up a JV with (91-22) 6157 3596
International (NAVISTAR). M&M is also the holding company for the aditya.s.makharia@jpmchase.com
Mahindra Group’s initiatives in high growth areas including IT services, real J.P. Morgan India Pvt Ltd
estate, financial services, auto parts, etc.
Price performance (INR)
Key beneficiary of rising mechanization of agriculture
700
We believe M&M will be the key beneficiary of this trend. As highlighted
600
above, agriculture is getting increasingly mechanized given a) diversification 500
of migrant labor to non-farm activities, b) rising farm incomes, c) supportive 400
government policies, which are important 'catalysts' for driving sales of 300
tractors/agri equipment.
Aug-09
Feb-10
Aug-10
Nov-09
May-10
Mahindra is the market leader in the tractor segment in India with a market
Source: Bloomberg
share of 41%. Besides the company is attempting to expand in the sub20 HP
segment, with the launch of the 'Yuvraj' tractor. We expect tractor sales to Table 3: Stock Performance
grow at 12% CAGR over FY10-12E. Given that tractors segment is a high
margin business, with EBIT margins at c.18%, the company should generate 1M 3M 12M
robust operating cash flows over this period. Absolute (%) -5 +10 +46
Relative (%) +1 +6 +15
Negative share price drivers Source: Bloomberg
M&M has recently emerged as a preferred bidder for ‘Ssangyong’, the
Korean SUV OEM. While the bid value appears to be modest, the key Table 4: Company Data
challenge for M&M in our view is to turn around the company and revive the 52-weekrange(Rs) 404-680
product pipeline, which would require investments in R&D (details on which Market cap(RsM) 358,215
are awaited). The roadmap to restructure the business will likely determine Market cap(US$M) 7,613
Shrs outsting(MM) 566
the capital commitments by M&M over the near to medium term. Free float(%) 77
Avg daily value(RsMM) 1,158
Valuation and risks Avg daily value(US$MM) 24.6
Avg daily volume(MMshs) 1.9
We re-iterate our OW on the stock, given that a) we are upbeat on industry BSE Sensex 17,971
growth, particularly on the high margin tractor segment, b) the company’s Exchange rate(Rs/US$) 47.1
entry in the high growth light truck segment, c) its subsidiaries, which Source: Bloomberg
account for c.25% of stock price and are present in the growth segments of
the Indian economy.
Table 5: Mahindra & Mahindra Financial snapshot (MM.IN, MAHM.BO)

Rs. in Millions, Y/E March FY09A FY10A FY11E FY12E
Net sales 130,488 185,296 215,549 243,946
Net profit 7,434 19,571 24,428 27,299
EPS (Rs) 13.6 34.6 43.2 48.2
DPS (Rs) 5.1 9.7 8.5 8.5
Net sales growth (%) 15.0 42.0 16.3 13.2
EPS growth (%) -25.6 153.7 24.8 11.8
ROE (%) 14.1 25.0 25.1 23.0
P/E (x) 46.4 18.3 14.7 13.1
EV/EBITDA (x) 30.0 13.0 11.8 10.5
Source: Company, Bloomberg, J.P. Morgan estimates. Priced as of 31 Aug 2010.
12
(91-22) 6157-3596 01 September 2010
Price target and risks

We have a March 2011 PT of Rs.729, which is based on a Sum of Parts of various
businesses.
Key risks to our investment thesis and PT: If M&M were to win the bid for
Ssangyong, gearing levels could increase from 0.4x levels currently. Also, any
potential moderation in rural demand could impact sales growth.
Table 6: Mahindra Sum of Parts Table

(INR per share)
FY12E
Dividend on Investments (Rs m) 1,249
Contribution to M&M EPS 2.2
M&M's EPS 48.2
Core EPS (post dividends) 46.0
PE Multiple 12
Value 552
Value of Subsidiaries (at 20% discount to listed price) 177
Total 729
Source: Company, J.P. Morgan estimates
13
(91-22) 6157-3596 01 September 2010
Mahindra & Mahindra Ltd: Summary of Financials
Rs. in Million, year end March Rs. in Million, year end March
Profit and Loss statement Cash flow statement
FY08A FY09A FY10A FY11E FY12E FY08A FY09A FY10A FY11E FY12E
Revenues 113,484 130,488 185,296 215,549 243,946 EBIT 9,507 7,562 25,120 28,480 31,788
% change Y/Y 14% 15% 42% 16% 13% Depreciation 2,387 2,915 3,708 4,283 5,292
EBITDA 11,894 12,849 29,777 32,763 37,080 Dec/(Inc) in W.Cap. 2,128 8,441 (6,934) (789) (814)
% change Y/Y 3% 8% 132% 10% 13% Taxes (2,665) (2,745) (5,006) (6,650) (7,435)
EBITDA Margin (%) 10.5% 9.8% 16.1% 15.2% 15.2% Cashfrom operations 11,357 16,173 16,888 25,325 28,831
Depreciation 2,387 2,915 3,708 4,283 5,292 Extra ordinary Items 2,581 935 1,632 0 0
Other Income 2,303 2,321 1,993 2,039 2,248 Net Capex -7,284 -11,449 -8,592 -13,000 -13,000
Interest Expense 242 453 278 -798 -963 Net Interest (Paid)/ Recd -242 -453 -278 798 963
Earnings before tax 14,067 10,366 28,467 31,317 34,998 Change in Trade Investment -19,776 -15,710 -6,120 -5,000 -5,000
Tax 3,034 1,997 7,590 6,890 7,700 Free cash flow -13,364 -10,503 3,531 8,123 11,794
as % of EBT 21.6 19.3 26.7 22.0 22.0 Income from Investments 2,303 2,321 1,993 2,039 2,248
Net Income (Reported) 11,033 8,369 20,877 24,428 27,299
Net Income (Adjusted) 8,761 7,434 19,571 24,428 27,299
% change Y/Y -3% -15% 163% 25% 12% Changes in Reserves 149 3,868 11,011 0 0
EPS (adjusted) 18.3 13.6 34.6 43.2 48.2 Debt raised/ (repaid) 9,511 14,657 -11,726 1,000 1,000
% change Y/Y -4% -26% 154% 25% 12% Dividends paid -3,247 -3,211 -3,121 -6,238 -5,532
Cash generated in the year -4,648 7,132 1,688 4,924 9,510
Dividend Per Share (Rs) 5.9 5.1 9.7 8.5 8.5 Beginning cash 13,261 8,612 15,744 17,432 22,357
Dividend Payout(%) 26% 33% 26% 20% 18% Ending cash 8,612 15,744 17,433 22,357 31,867
Rs. in Million, year end March %, year-end Mar

Balance sheet Ratio Analysis
Rs in millions, year-end Mar FY08A FY09A FY10A FY11E FY12E FY08A FY09A FY10A FY11E FY12E
EBITDA margin 10.5 9.8 16.1 15.2 15.2
Cash and C.E. 8,612 15,744 17,432 22,357 31,867 Net profit margin 9.7 6.4 11.3 11.3 11.2
Accounts receivable 10,049 10,437 12,581 15,565 17,646
Inventories 10,841 10,607 11,888 14,412 16,339 Sales growth 14 15 42 16 13
Others 7,052 13,842 18,523 21,235 24,353 Net profit growth -3 -15 163 25 12
Current assets 36,554 50,629 60,424 73,568 90,205 EPS growth -4 -26 154 25 12
Trade Investments 42,151 57,861 63,980 68,980 73,980 P/E (x) 34.5 46.4 18.3 14.7 13.1
Net fixed assets 23,609 32,143 37,027 45,744 53,452 Cash P/E (x) 27.1 33.3 15.4 12.5 11.0
Misc. Expenses 135 308 7 7 7 EV/EBITDA (x) 27.6 30.0 13.0 11.8 10.5
Total assets 102,449 140,941 161,438 188,299 217,643 EV/Sales (x) 3.0 3.0 2.1 1.8 1.6
Price to Book Value (x) 7.0 6.6 4.6 3.7 3.0
Liabilities 102,449 140,941 161,438 188,299 217,643 Dividend Yield (%) 0.9 0.8 1.5 1.3 1.3
Payables 22,871 34,431 34,000 39,777 45,097
Others 9,639 13,547 17,965 18,914 19,907
Total current liabilities 32,510 47,978 51,965 58,690 65,003 Net debt to equity (%) 59 77 37 31 26
Deferred Tax 567 (181) 2,403 2,644 2,908 Sales/assets (%) 162 140 169 166 160
Debt 25,871 40,528 28,802 29,802 30,802 Assets/equity (%) 161 177 140 133 128
Total liabilities 58,948 88,324 83,170 91,135 98,713 ROE (%) 20.1 14.1 25.0 25.1 23.0
Shareholders' equity 43,501 52,617 78,268 97,164 118,931 ROCE (%) 16.9 13.2 25.6 23.5 22.3
BVPS (Rs) 91 97 138 172 210
Source: Company, J.P. Morgan estimates.
14
(91-22) 6157-3596 01 September 2010
Companies Recommended in This Report (all prices in this report as of market close on 31 August 2010)
Ashok Leyland (ASOK.BO/Rs73.60/Underweight), Bajaj Auto (BAJA.BO/Rs2,731.75/Neutral), Hero Honda
(HROH.BO/Rs1,791.55/Underweight), Mahindra & Mahindra (MAHM.BO/Rs626.70/Overweight), Maruti Suzuki India
Ltd (MRTI.BO/Rs1,257.50/Neutral), Tata Motors (TAMO.BO/Rs1,010.35/Overweight)
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responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with
respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research
analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
research analyst(s) in this report.
Important Disclosures
• Lead or Co-manager: JPMSI or its affiliates acted as lead or co-manager in a public offering of equity and/or debt securities for
Tata Motors within the past 12 months.
• Analyst Position: The following analysts (and/or their associates or household members) own a long position in the shares of Bajaj
Auto: Bijay Kumar. The following analysts (and/or their associates or household members) own a long position in the shares of
Mahindra & Mahindra: Bijay Kumar. The following analysts (and/or their associates or household members) own a long position in
the shares of Tata Motors: Bijay Kumar.
• Beneficial Ownership (1% or more): JPMSI or its affiliates beneficially own 1% or more of a class of common equity securities of
Hero Honda.
• Client of the Firm: Ashok Leyland is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to
the company non-investment banking securities-related services and non-securities-related services. Bajaj Auto is or was in the past
12 months a client of JPMSI. Hero Honda is or was in the past 12 months a client of JPMSI. Mahindra & Mahindra is or was in the
past 12 months a client of JPMSI. Maruti Suzuki India Ltd is or was in the past 12 months a client of JPMSI. Tata Motors is or was
in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services,
non-investment banking securities-related services and non-securities-related services.
• Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation for investment banking
services from Tata Motors.
• Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment
banking services in the next three months from Tata Motors.
• Non-Investment Banking Compensation: JPMSI has received compensation in the past 12 months for products or services other
than investment banking from Ashok Leyland, Tata Motors.
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Coverage Universe: Aditya Makharia: Ashok Leyland (ASOK.BO), Bajaj Auto (BAJA.BO), Bosch Limited (BOSH.BO),
Container Corporation of India Ltd (CCRI.BO), Hero Honda (HROH.BO), Mahindra & Mahindra (MAHM.BO), Maruti
Suzuki India Ltd (MRTI.BO), Tata Motors (TAMO.BO)
15
(91-22) 6157-3596 01 September 2010
J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2010

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Asia Pacific Equity Research

Diversification of ‘labor’ to non-farm activities

Our interaction with farmers 20

Source: Ministry of Rural Development

Figure 3: Average Daily Wage under NREGA (in INR)

Source: Ministry of Rural Development

Quote from farmers in Haryana:

Source: J.P. Morgan

Growing industrialization/alternate jobs is also leading to diversification from

Changing lifestyles/diversification: We found that in farm households, the second

Source: J.P. Morgan

Tractors sales in India:

Figure 6: Tractor Penetration in India

Source: Mahindra & Mahindra

Figure 7: Tractor sales in India (in unit nos)

Source: Mahindra & Mahindra

Figure 8: Sales of power Tillers at VST Tractors and Tillers

Quote from a tractor dealer in

Source: J.P. Morgan

Figure 10: Drip Irrigation plant set up in a field in Tamil Nadu

Source: J.P. Morgan

VST Tillers Tractors Ltd – Benefiting from

Source: Company Reports

Source: VST Tillers Tractors Ltd

Figure 13: Sales of sub 20HP tractors at VST

Source: Company Reports

Competition: As per management, competition in this segment is limited. Mahindra

Source: Company Presentation

Tractors, 811 , 24%

Tillers, 2,120 , 61%

Source: Company Reports

Table 2: VST Tillers Tractors Ltd Financial Snapshot (VSTT.IN)

EBITDA 228 257 475 651

PAT 125.5 144 289 423

Mahindra and Mahindra Ltd. Overweight

Company description India

Table 5: Mahindra & Mahindra Financial snapshot (MM.IN, MAHM.BO)

Price target and risks

Table 6: Mahindra Sum of Parts Table

Mahindra & Mahindra Ltd: Summary of Financials

Rs. in Million, year end March %, year-end Mar

Source: Company, J.P. Morgan estimates.

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:

J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2010

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