Mahindra & Mahindra: Positive momentum continues:: UBS

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UBS Investment Research
Mahindra & Mahindra
Positive momentum continues
􀂄 Q2FY11 sales: Rs.53.1bn (+19% YoY, +4% QoQ)
M&M (stand-alone) revenues were slightly above our estimates at Rs.53.1bn
(UBSe: 52.2bn). Automotive segment revenue was up 15% QoQ to Rs.33.2bn.
Mgt. believes co. lost 4-5k units of potential sales in UV segment in Q2 due to
supply constraints that has now been resolved. FES revenue increased to 12%
YoY. Powerol sales declined due to significant slowdown in telecom sector. .
􀂄 Q2FY11 EBITDA: Rs.7.7bn (+5% YoY), PAT at Rs.7.6bn
Q2FY11 EBITDA margin (exc. other op. income) increased 10bps QoQ to 14.5%
due to lower RM costs to sales at 68.7% vs. 70.1% in Q1FY11 partially offset by
increase in staff costs by 22% YoY ( due to one time VRS cost of Rs.260m). PAT
was up 8% YoY and 35% QoQ to Rs.7.6bn due to higher other operational income
(increased 33% YoY) including Rs.746mn (flat YoY) of octroi refund
􀂄 Key takeaways from conf. call
1. Mgt is confident to maintain its strong positioning in UV segment with several
new launches planned for next 3-4 yrs. 2. There is steady ramp up in LCV segment
with Maxximo prod’n reaching 3k units/mth 3) Ssangyong deal will be completed
in Jan/Feb’11 with definitive agreement expected to be signed in Nov’10 and 4).
Auto margins outlook remains robust as co. has passed full BS3/4 Charges.
􀂄 Valuation: Maintain Buy and a price target of Rs.850
We derive our price target from a sum-of-the-parts methodology. We value the
standalone business at Rs634/share, based on an average 8x FY12-13E
EV/EBITDA, and its subsidiaries at Rs216/share.






Key takeaways from the conf. call.
􀁑 Roadmap for UV: Mgt is confident to maintain its strong positioning in UV
segment with several new launches planned for next 3-4 years
􀁑 Ssangyong update: Mgt. updated that Ssangyong deal will be completed in
Jan/Feb 2011 with definitive agreement expected to be signed in November
2010.
􀁑 Chakan Plant update: Chakan plant contributes ~Rs.240mn to revenue and
Rs. 60mn of PBIT. PAT is much lower due to higher interest costs. Full
commission of Chakan plant will add 800 units/day to the current rate of
1000 units/day. The proposed new plant in South India will start two years
from now with start up capacity of 50k units expandable up to 100,000 units.
􀁑 Receding supply constraints: Mgt. believes co. lost 4-5k units of potential
sales in UV segment in Q2 due to supply constraints of casting and fuel
injection equipment. Mgt. guides for easing supply constraint pressure going
forward.
􀁑 FES Margins: PBIT margins also declined YoY to 17.1% from 20.4% in
Q2FY10 mainly due to 1) one time VRS cost of Rs. 260m. 2) higher impact
of commodity price increases on tractors vs. automotive 3) declining
Powerol revenue.
􀁑 CV update: Co. has started sales of MHCV sales (25T and 31T) through its
currently operation 20 dealerships. Mgt. guided that they plan to have 50
outlets by the end of FY11. Co. will launch 40T by end of FY11 and Tipper
by early FY12.