After gap of 4 years, both UVs & tractors to deliver double digit volume growth. M&M is taking initiatives through product actions and increased marketing focus on TUV/KUV to drive recovery in UV business. Micro-hybrid opportunity to drive recovery in bigger SUVS and support margins. Levers to off-set headwinds on margins; estimate ~100bp improvement by FY18. Strong earnings traction in core (24% CAGR) + Potential reduction in losses of non-core (Consol EPS CAGR 36%) + Attractive valuations (14.5x FY18 consol PE) = Buy.

Worst is over for M&M not only in its core businesses of tractors and UVs, but also in key subsidiaries. This would result in ~36% consol EPS CAGR over FY16-18E (v/s ~14% CAGR decline over FY14-16). With strong earnings cycle ahead in core business and potential reduction in losses of non-core business, valuations at ~16.9x FY18E S/A EPS, ~14.5x FY18E Consol EPS and ~6.3% FY18 FCF yield are very attractive. Maintain Buy, with SOTP based TP of ~INR1,713 (16x FY18 Core EPS + Subs at 20% HoldCo Discount).