Buy M& M: Fine 3Q performance, in line with expectations: target Rs833; Anand Rathi

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Mahindra & Mahindra
Fine 3Q performance, in line with expectations; maintain Buy
M&M’s 3Q profit rose 45.5% yoy on healthy volume growth,
improved realization and sustained healthy operating
performance. We remain positive on M&M’s core business and
expect strong performance ahead. We raise our FY11e/FY12e
volume estimates 5.3%/7.4% and revise target price to `833
from `899. Maintain Buy.

 Improved volume and realization underpin growth. M&M’s
standalone net sales grew 36.1% yoy and 13.2% qoq to `61.2bn.
This was driven by volume growth of 31.8% yoy and 13.2% qoq
along with realization, which was higher 3.3% yoy and 0.8% qoq.
 Operating performance in line. M&M’s 3Q EBITDA margin
was 15.1%, in line with our estimate. Adjusted profit stood at
`6.2bn, which was 45.5% higher yoy, although it declined qoq as
absence of dividend from subsidiaries led to lower other income.
 Change in estimates. We raise our FY11e and FY12e volume
5.3% and 7.4% respectively to account for good traction. We also
factor in the allotment of 17.4m shares to the ESOPs Trust, the
net effect of which is lowering FY11e and FY12e standalone EPS
by 2.2% and 1.3% respectively.
 Valuation and risks. We reduce our target price to `833 from
`899, based on 13x standalone core EPS, value of listed
subsidiaries at `138 and value of cash & investments at `130.
M&M trades at 12.2x FY12e earnings. Key risks: negative surprise
from overseas acquisition; rise in input cost; higher interest rates.