Mahindra & Mahindra - Strong Performance-OW:: Morgan Stanley

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Mahindra & Mahindra
Strong Performance Across
Segments: Remain OW
Quick Comment – Strong Results, EBITDA
improvement: M&M reported a strong result with
adjusted EBITDA 10% ahead of our estimates. On a
sequential basis automotive EBIT margins expanded
while farm equipment EBIT was stable at 17.1%. Overall
the standalone revenues, EBITDA and net income
posted 20%, 10% and 20% YoY growth, respectively.
Non core operations also posted EBIT growth of 52%
QoQ. The stock trades at 12x FY12e consolidated, with
projected 18% EPS CAGR over FY10-13e.
Earnings Rise by about 3.4%/1.2% in F11/12e,
Maintain OW: We are increasing our earnings by
3.4%/1.2% over FY11/12e to reflect increased operating
efficiencies from 2QF11 results. We are building in
about 545k and 633k total volumes in our F11 and F12
estimates – growth of 19% and 16% YoY, respectively.
On segmental growth, we are in line with management
guidance of 14-15% growth in UVs and Tractor volumes
for FY11. We have increased our EBITDA margin
assumptions by 46bps/17bps in F11/12 on the back of
improved operational efficiencies.
Consolidated basis: Consolidated revenues were up
14% YoY and 10% QoQ, on the back of improved
performance by core and non-core businesses. In the
non-core business, financial services, infrastructure and
Systech (Forgings and MUSCO) businesses reported
significant improvement with 20%, 54% and 10% QoQ
increase in revenues, respectively. Net income was
down 17% YoY. However adjusting for profit of
Rs700mn pertaining to Mahindra Holidays IPO in
standalone plus deemed divesture profit in consolidated
accounts, net income was up 9.8% YoY.
Remain OW on M&M: The core business remains
strong and non core businesses are also recovering.
Strong growth in the high margin pickup/lite truck
segment, successful foray into motor cycles and
turnaround in Ssangyong, could lead to upside risks to
our earnings.