| Swaraj Engines-Key Beneficiary of The Rs 4500 crore Expansion of M&M
M&M's launch of a 15HP tractor could drive upside to our 9% tractor volume growth estimate for FY2011E. This will automatically imply a higher demand for Tractor Engines that Swaraj Engines produces. M&M's management indicated that they would be launching a 15hp tractor called the Yuvraj to target the 82% of farmer households that own less than 5 acres of land. The penetration of tractors in these households is close to 1%. The USP of the product would be affordable pricing and fuel efficiency. We believe the 15hp would be introduced at a price point that is close to 50% lower than existing tractors. At the higher end, the company is seeing good demand for its harvesters and combines as labor gets more expensive in rural areas. The company sees good room for growth here given the low levels of farm productivity in the country. Management indicated a capital expenditure plan of Rs45 bn over a 3-year time frame of FY2011-13E and an investment plan of Rs25 bn over the same time period. Apart from further investments into the Chakan plant, the company is looking to set up a new tractor plant. M&M's own tractor unit is currently running at 100% utilization levels Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. --- On Tue, 7/6/10, Bhagirath Verma <verma.bhagirath@
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