We attended MM’s TUV300 launch yesterday at the company’s Chakan plant in Pune. Aggressively priced at Rs 690,000 and positioned as a rough-and-tough vehicle, the TUV300 appears better suited for semi-urban/rural markets and is the first of two new compact SUVs expected from MM this year. Launches augur well for MM’s auto segment volumes, but scanty rainfall in most parts of India has cast a pall on the tractor business. We cut estimates to build in lower volumes and revise our Sep’16 TP to Rs 1,330 (from Rs 1,400). Maintain HOLD.

TUV300 launch: MM launched the TUV300 in 7 variants including an AMT version with pricing in the range of Rs 690,000 to Rs 912,000 (ex-showroom Pune). Slated as competition for the likes of EcoSport and Duster, the TUV300 will have a 1.5ltr diesel engine, a tank-type build, Scorpio-type chassis and an engine similar to the XUV500 and Scorpio. In all, MM has spent ~Rs 12bn on R&D, designing, tooling and engines.

Potential fillip to flagging volumes: MM can currently manufacture ~3,300 TUV300 units a month which will be ramped up to 5,000 vehicles in a month’s time. We believe the vehicle’s rough-and-tough positioning could find more takers in rural and semi-urban markets. MM already dominates the segment with 75%+ share (largely ladder frame products) in its flagship Bolero and Scorpio models. The new launch will likely give a fillip to volumes, but could also cannibalise on Bolero sales.

Up next – an urban compact SUV: As planned, MM will launch its next compact SUV codenamed S101 in Nov’15 targeting the urban market. The product will be keenly watched as it too will compete with EcoSport and Duster in the urban SUV category.

Earnings tweaked; maintain HOLD: While new launches in the auto segment should aid volume growth, we expect the poor monsoon season to dampen tractor sales. We lower our FY16 and FY17 earnings estimates for MM by 4% each to factor in lower tractor volumes and cut our Sep’16 TP to Rs 1,330. Maintain HOLD, says Religare Retail research report.