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BE brand EVs to open new spaces beyond pure SUVs                          Investment of INR100b in EVs includes INR6b in XUV400

* We attended MM's investor meet where the focus was on its Electric SUV strategy. This meeting built-on further from the EV event in the UK and the recent XUV400 launch. The management's EV strategy pivots on two brands, with the focus on maintaining its legacy (XUV) and exploring new spaces under the BE brand. It will continue to collaborate on the technology front with global players, with a focus on differentiation, by offering a strong product-price combination. The key highlights of the meet were:

* Two EV brands: MM will be using two brands - 'XUV' and 'Born Electric' (BE) - for its Electric Vehicles. While the XUV brand will be consistent with its SUV legacy, the BE brand will open up new spaces and form factors (beyond pure SUVs). In EVs, it will continue to operate in existing segments and will not venture in the Luxury segment.

* The XUV400 is the first e-SUV from MM. After this, it plans to launch four eSUVs on the Born EV platform: XUV.e8 (Dec'24), XUV.e9 (Apr'25), BE.05 (Oct'25), and BE.07 (Oct'26). The fifth model - BE.09 - is still at the concept stage, with no clear timelines for the launch at this point in time.

* The XUV400 offers best-in-class acceleration, safety, range, style, and space. The test drives will begin from Dec'22, while bookings and deliveries starting in Jan'23

* It has invested INR6b on the XUV400 towards the battery pack, BMS, floor changes, body changes, etc.

* The management feels cell availability will be the biggest bottleneck for XUV400, as everything is localized, apart from the cells and motors. The battery is designed by AVL, with the cell sourced from South Korea, and the battery produced at its Chakan plant. It sources the motor from Valeo, with the integration of the motor, controller, and ECU being undertaken by BluSend. The XUV400 doesn't use any components from its sourcing arrangement with VW.

* MM will invest INR100b on four BEVs, XUV400, its manufacturing capacity, etc. It won't invest on charging infrastructure, but will collaborate on the same.

* Charging infrastructure: It is in the final stages of signing three MoUs, which focus on: a) private charging (home and office), b) fast charging at dealerships, and c) leveraging its existing charging infrastructure.

* Its JV with VW targets more than 1m units over its lifetime, including components for all five Born EV SUVs.

* Valuation and view: While the outlook for Tractors is murky, we expect the Auto business to be a key driver of growth over the next couple of years. Despite a deterioration in the mix, we expect a revenue/EBITDA/EPS CAGR of ~21%/29%/~27.5% over FY22-24. Implied core P/E for MM stands at 14.2x/13.8x FY23E/FY24E EPS. While the stock is still cheap as compared to its peers, it has got substantially re-rated over the last two quarters and is now trading at a premium to its five-year average core P/E (against a discount of 30% earlier). The premium to its LPA has been a reflection of its strong performance in the SUV segment, cyclical recovery in LCVs, and improvement in its outlook for the Tractor business (from Apr-Jun'22). We maintain our Buy rating, with a TP of INR1,432 (Sep'24E based SoTP).

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