Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra & Mahindra
Business on track, but margins under threat
„Cut forecast and PO
Q3 profit grew 49% yoy but declined 13% qoq at Rs 6.2bn, lower than our
estimate of Rs 6.4bn, after adjusting for one-time gains of Rs 1.8bn. We therefore
cut out standalone EPS forecasts by 1%-5% over FY11E-12E, and our PO by
12% to Rs 750 to factor (1) lower profit forecasts, and (2) de-rating, both on
account of slower growth and recent corporate action regarding equity dilution.
Maintain our Buy rating.
Demand outlook still healthy…
We believe M&M is on track to beat our annual forecasts, mainly tractors, where
the growth visibility is high due to rising rural incomes and shortage of labour.
Also, despite macro-headwinds, we expect auto business to maintain double-digit
growth rates, thanks to limited competition and new launches. Tweak volume
assumptions but maintain positive view on demand across operating segments.
…but margin pressures to continue
EBITDA margins declined 70bps qoq (up 20bps yoy) to 15.1%, lower than our
estimate of 15.6%, due to a sharper than expected rise in costs. EBITDA grew
38% to Rs 9.2bn (est Rs 9.7bn). On a segmental basis, tractors (~37% of sales,
~50% of EBITDA) remain highly profitable, but auto margins continue to exhibit
volatility and weakness due to competitive pressures. We therefore cut back our
margin assumptions by 60bps-100bps over the next two years to 15.2%/14.7%.
Maintain Buy on lower imputed multiple
Following 21% correction from recent peak, valuations appear attractive. Revised
sum of parts value factors lowered forecasts as well as likely stock de-rating due
to grant of stock options to employees at par as part of remuneration.
Price objective basis & risk
M & M (MAHHF / MAHMF)
Our PO of Rs750(US$17 for GDR) is based on sum of parts of constituent
businesses. Value (1) standalone business at 12.5x FY12E EPS (Rs 598/share),
slightly below peers, compared to earlier 14x FY12E EPS (Rs 704/share), and
(2) key operating subsidiaries at Rs 152/share. We have imputed a holding
company discount of 20pct to subsidiaries, again in line with percentage for
peers. Downside risks: Slowdown in the economy and increasing competition that
would adversely affect volume growth, and rising input costs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra & Mahindra
Business on track, but margins under threat
„Cut forecast and PO
Q3 profit grew 49% yoy but declined 13% qoq at Rs 6.2bn, lower than our
estimate of Rs 6.4bn, after adjusting for one-time gains of Rs 1.8bn. We therefore
cut out standalone EPS forecasts by 1%-5% over FY11E-12E, and our PO by
12% to Rs 750 to factor (1) lower profit forecasts, and (2) de-rating, both on
account of slower growth and recent corporate action regarding equity dilution.
Maintain our Buy rating.
Demand outlook still healthy…
We believe M&M is on track to beat our annual forecasts, mainly tractors, where
the growth visibility is high due to rising rural incomes and shortage of labour.
Also, despite macro-headwinds, we expect auto business to maintain double-digit
growth rates, thanks to limited competition and new launches. Tweak volume
assumptions but maintain positive view on demand across operating segments.
…but margin pressures to continue
EBITDA margins declined 70bps qoq (up 20bps yoy) to 15.1%, lower than our
estimate of 15.6%, due to a sharper than expected rise in costs. EBITDA grew
38% to Rs 9.2bn (est Rs 9.7bn). On a segmental basis, tractors (~37% of sales,
~50% of EBITDA) remain highly profitable, but auto margins continue to exhibit
volatility and weakness due to competitive pressures. We therefore cut back our
margin assumptions by 60bps-100bps over the next two years to 15.2%/14.7%.
Maintain Buy on lower imputed multiple
Following 21% correction from recent peak, valuations appear attractive. Revised
sum of parts value factors lowered forecasts as well as likely stock de-rating due
to grant of stock options to employees at par as part of remuneration.
Price objective basis & risk
M & M (MAHHF / MAHMF)
Our PO of Rs750(US$17 for GDR) is based on sum of parts of constituent
businesses. Value (1) standalone business at 12.5x FY12E EPS (Rs 598/share),
slightly below peers, compared to earlier 14x FY12E EPS (Rs 704/share), and
(2) key operating subsidiaries at Rs 152/share. We have imputed a holding
company discount of 20pct to subsidiaries, again in line with percentage for
peers. Downside risks: Slowdown in the economy and increasing competition that
would adversely affect volume growth, and rising input costs.
No comments:
Post a Comment