M&M: Healthy 2QFY11 Results; Buy: Citi

Visit http://indiaer.blogspot.com/ for complete details �� ��


Mahindra & Mahindra (MAHM.BO)
Healthy 2QFY11 Results; Maintain Buy
 Recurring PAT at Rs7.1bn was 25% above estimates — A substantial portion of
this is attributed to dividends from subsidiaries (~Rs1.2bn), which are recurring
from an annual (though not necessarily quarterly) perspective. Operating EBITDA
of Rs8.2bn was ~5% ahead of our estimates. Reported PAT at cRs7.6bn included
a Government Grant of Rs726.9mn (Rs485mn post tax)
 Conf. call takeaways — a) Mgmt’s outlook on industry growth is a strong 14% for
UV and 14-15% for tractors. b) Supply constraints that marred production in
1HFY11 have been resolved. c) Input costs to remain high, though 2H will see a
more amenable rise of 2-3 % as compared to 4-7% in 1H; impact would be higher
on the tractor segment. d) Balance sheet remains healthy – D/E at 0.29x is down
from 0.35x in 1QFY11, with cash (ex investments) balance of Rs13bn. e) Capex
guidance for FY11-13 is Rs45bn, out of which ~Rs6bn was incurred in 1H. f)
Mgmt is positive on MHCV/LCV businesses and plans new launches in UV
segment. g) No clarity – yet – on Ssangyong.
 FY12-13 earnings estimates revised by c8% — We cut our FY11 earnings slightly
(byc2%) to reflect slight decline in interest income. Our earnings boost in out
years mirrors our positive stance on volumes (revised 6/7% over FY12/13) as well
as realizations. We maintain our tax rate of 22% (in line with mgmt guidance).
PAT margins have been revised upwards by 35–23bps over FY12/13 respectively.
 Maintain Buy, raise TP to Rs842 from Rs753 — Our SoTP methodology values the
parent business at Rs682/share based 11x Mar12E CEPS (ex-dividend). We value
listed subsidiaries at Rs160/share (25% discount to market value). We continue to
be positive on stock given 1) M&M’s strong market positioning in its core
businesses i.e. UVs and tractors; 2) good monsoon this year is expected to boost
agri demand (for tractors) as well as rural demand for UVs; 3) favorable customer
response to M&M’s LCVs-Gio and Maxximo; and 4) strong product pipeline in UVs.