M&M: OUTPERFORM; Price target: Rs802:: Standard Chartered

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Mahindra and Mahindra Ltd
OUTPERFORM (unchanged) Price target: Rs802



2Q results (Standalone)
M&M’s revenue grew 19.5% yoy, EBITDA margin (adjusted) declined 140bps yoy to 15.8% and adjusted net profit
grew 20.1% on account of higher other income. We raise our EPS estimate by 3.7% for FY11E to Rs42.3 and 5% for
FY12E to Rs47.9 and at 20% discount to the current market price of its listed subsidiaries, arrive at a revised SOTP
based value for M&M Rs802 (Rs762 earlier). Reiterate OUTPERFORM.








Results: Key points
Revenue grows in line with expectations - Total income grew 19.5% for 2QFY11 to Rs53.61bn,
driven by 20.1% yoy growth in volume, while realization was lower by 0.5% yoy. On a qoq basis,
volume grew 3.1%, while realization grew 0.8%.
Adj. EBITDA margin at 15.8% - M&M reported adj. EBITDA growth of 10.3% yoy to Rs8.5bn.
Adj. EBITDA margin declined 140bps yoy (although rose 80bps qoq) to 15.8% mainly on account
of higher raw material to sales ratio of 68.1% (+270bps yoy and -150bps qoq).
Higher other income boosts net profit - Adjusted PAT grew ahead of our expectation at 20.1%
yoy and 26.6% qoq to Rs7.1bn due to higher other income, which grew 49.9% yoy given 46%
rise in dividend from subsidiaries.
Raising EPS estimate - We revise our EPS estimate by 3.7% to Rs42.3 (40.8 earlier) for FY11
and by 5% to Rs47.9 (45.6 earlier) for FY12, based on the revision of our EBITDA margin
estimates (15.2% for FY11e and 14.6% for FY12E) and higher other income.
Valuation: Reiterate Outperform - Based on revised EPS estimates and 20% discount to the
current market price of the listed subsidiaries, our SOTP based value for the company is Rs802
(Rs762 earlier). Reiterate OUTPERFORM.


Revenue growth at 19.5%, in line with expectations
Total income grew 19.5% for 2QFY11 to Rs53.61bn, driven by 20.1% yoy growth in volume,
while realization was lower by 0.5% yoy. On a qoq basis, volume grew 3.1%, while realization
grew 0.8%.



Adj. EBITDA margin at 15.8%
M&M reported adj. EBITDA growth of 10.3% yoy to Rs8.5bn. Adj. EBITDA margin declined
140bps yoy (although rose 80bps qoq) to 15.8% mainly on account of higher raw material to
sales ratio of 68.1% (+270bps yoy and -150bps qoq); this was partially set off by 110bps yoy
reduction in OE/Sales.
2Q staff expenses include VRS compensation of Rs259m (Rs 13.8m in 2QFY10); removing this
from the calculation of extraordinary expenses, we get EBITDA margin of 15.3%, against our
expectation of 15%.



Segmental performance
1. Automotive segment: Revenue in the automotive segment increased 24.4% yoy and 13%
qoq to Rs32.5bn (adjusted for subsidy grant from the government). Overall revenue
proportion of auto segment increased 230bps yoy mainly on account of higher volumes in
the product mix.
 Revenue for the segment was driven by volume growth of 24.4% yoy and 11.2% qoq,
while realisation was flat yoy and up 1.5 qoq.
 EBIT margin for this segment, at 13.8% (+70bps qoq and +160bps yoy), was the
highest ever in five years. EBIT increased 31% yoy and 27% qoq to Rs4.5bn.
2. Farm equipment segment: Farm equipment revenue grew 12.4% yoy (declined 8.3% qoq) to
Rs20.9b, driven by 12.6% yoy growth in volume (9.3% qoq decline as seasonally weak
quarter for volume) and 1% qoq (flat yoy) growth in realisation (both impacted by the newlylaunched
tractor at the lower end).
 EBIT margin for the segment was at 17.1% (-330bps yoy and flat qoq). EBIT declined
6% yoy and 8.6% qoq to Rs3.6bn





Consolidated performance
Consolidated revenue in 2Q increased 14.3% yoy to Rs94.1bn (not comparable on a yearly basis
due to the change in classification of Tech Mahindra from subsidiary to an associate company).
 The reported profit declined 16.9% yoy, but increased 12.9% qoq, to Rs.7.2b (excluding
exceptional and prior period item and minority interest); (clarification needed). The
consolidated segmental performance numbers have not been released yet



Raising EPS estimate
We revise our EPS estimate by 3.7% for FY11E to Rs42.3 (40.8 earlier) and by 5% to Rs47.9
(45.6 earlier) for FY12E, based on the revision of our EBITDA margin estimates (15.2% for
FY11e and 14.6% for FY12E). Based on higher EPS estimates and 20% discount to the current
market price of the listed subsidiaries, we increase our price target to Rs802. Reiterate
Outperform.