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Mahindra & Mahindra Ltd. (M&M) | Q2FY14 Result Update




IndiaNivesh Securities Pvt Ltd


13 Nov 2013





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Mahindra & Mahindra Ltd. (M&M) | Q2FY14 Result Update Above street expectation | Mahindra & Mahindra’s reported Q2FY14 numbers were above street expectations. Quarter witnessed strong performance in tractor segment with margin improved due to effective cost control and price hike. Net sales de-grew by 8.7% YoY and 11 QoQ to Rs 88.14 bn (in line with consensus of Rs. 88.62 bn) led by de-growth in automotive volume and average realization. Automotive volume decreased by 16% YoY which was offset by 21% growth in tractor segment. Automotive segment shown subdued performance dragged by adverse product mix, higher discounting pressure and advertisement spends on weak demand environment. However tractor segment performed well on the back of strong monsoon. Volume of tractors, including exports, jumped 21% Y-o-Y to 59264 units. Average realization (Auto+ tractor) decreased by 4% YoY and 2.9% QoQ Rs.496453. EBITDA margin improved 141 bps YoY (flat QoQ to) 13 % led by strong performance by its tractor sector and lower RM cost. RM cost (adjusted) decreased by 408 bps YoY to 72.4% (as a percentage of sales). Auto segment’s EBIT margin contracted by 2 bps YoY (up 11 bps QoQ) to 9.37% while tractor segment EBIT margin improved by 221 bps YoY and 24 bps QoQ to 16.98% due to lower RM cost and price hike. Company’s reported net profit increased by 10% YoY Rs 9.89 bn due to higher other income (dividend from subsidiary companies) and lower effective tax rate. However Adjusted PAT (excluding impact of higher other income and lower effective tax rate) comes at Rs. 9.2 bn, ahead consensus of Rs. 8.6 bn. Management expects that tractor demand continues to remain strong driven by good monsoons. Management has revised tractor growth outlook from 10-12% earlier to 16 -18% for FY14. However, company expects H2FY14 to be challenging for Automobile segment driven higher diesel prices and weakening macro environment. Valuation: We have a positive view on the stock due to its strong product portfolio catering to both urban & rural section. We expect that moderation in automobile segment growth would be compensated by tractor segment growth. At CMP of Rs 895, M&M is trading at 10x FY15e consolidated earnings. We maintain our buy rating on the stock with target price of Rs.995.

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