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Strong 3Q results
M&M reported a strong 46% YoY growth in net profits in 3Q driven by strong
volume growth and relatively stable margins. Cost pressures are rising but
with strong growth outlook for both UVs and tractors, multiple new launches
and minimal incremental competition, M&M is best-placed to defend margins
at 15%. We maintain our FY11-13 profit forecasts but cut EPS by 3%
factoring in dilution from the ESOP trust share allotment. Our target price
drops to Rs875 (34% upside) on account of the dilution. M&M remains our top
pick in India Autos. Maintain BUY.
Strong 3Q results; good margin defence
M&M’s 3Q EBITDA at Rs9.2bn grew a strong 35% YoY boosted by a 31% YoY
growth in volumes. EBITDA margins at 15.1% declined 20bps YoY / 70bps QoQ
due to rising input costs as RM/Sales ratio rose 100 bps QoQ. Automotive
segment margins declined 340 bps QoQ but were compensated by a 140 bps QoQ
improvement in farm equipment segment margins. However, we view M&M’s
margin defense in 3Q as being much better than its auto peers who registered a
sharper QoQ margin drop. Inclusive of MVML, margins would have been higher at
15.7%. M&M has taken 0.5-2% price hike in UVs in early-Jan to pass on cost
pressures and we believe that margins will sustain at 15%+ levels in 4Q as well.
There were no surprises below EBITDA line and recurring net profit at Rs6.2bn
grew 46% YoY – inline with our estimates.
Strong demand outlook; multiple new launches
M&M is seeing strong demand in UVs and tractors. In tractors, M&M’s market
share has moved up to 43.3% in 3Q driven by the low-cost tractor (Yuvraj), which
is seeing a strong response. M&M expects 10-12% tractor industry growth in FY12
(we expect 13%). In UVs, M&M expects 15-18% industry growth in FY12 (we
build in 15%). M&M has recently launched the ‘Genio’ - a new 1.5t pick-up on the
‘Xylo’ platform and has also launched a back-hoe loader – its first launch in the
construction equipment segment. Specific investment costs for these products are
low and profitability could be high if the market response is good. M&M will now
launch multiple new UVs and will ramp-up the ‘Yuvraj’ across India over FY12-13.
We view recent correction as an opportunity to buy
Stock has come off sharply in the last two weeks on concerns regarding the ESOP
trust share allotment as well as fears of weaker margins. We believe that the 3Q
results should allay fears of a sharp decline in margins. Our new estimates factor
in the ESOP trust dilution. We believe that improving demand-supply
fundamentals in tractors combined with M&M’s strong new launch calendar more
than offset the macro negatives plaguing the auto sector. Maintain BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong 3Q results
M&M reported a strong 46% YoY growth in net profits in 3Q driven by strong
volume growth and relatively stable margins. Cost pressures are rising but
with strong growth outlook for both UVs and tractors, multiple new launches
and minimal incremental competition, M&M is best-placed to defend margins
at 15%. We maintain our FY11-13 profit forecasts but cut EPS by 3%
factoring in dilution from the ESOP trust share allotment. Our target price
drops to Rs875 (34% upside) on account of the dilution. M&M remains our top
pick in India Autos. Maintain BUY.
Strong 3Q results; good margin defence
M&M’s 3Q EBITDA at Rs9.2bn grew a strong 35% YoY boosted by a 31% YoY
growth in volumes. EBITDA margins at 15.1% declined 20bps YoY / 70bps QoQ
due to rising input costs as RM/Sales ratio rose 100 bps QoQ. Automotive
segment margins declined 340 bps QoQ but were compensated by a 140 bps QoQ
improvement in farm equipment segment margins. However, we view M&M’s
margin defense in 3Q as being much better than its auto peers who registered a
sharper QoQ margin drop. Inclusive of MVML, margins would have been higher at
15.7%. M&M has taken 0.5-2% price hike in UVs in early-Jan to pass on cost
pressures and we believe that margins will sustain at 15%+ levels in 4Q as well.
There were no surprises below EBITDA line and recurring net profit at Rs6.2bn
grew 46% YoY – inline with our estimates.
Strong demand outlook; multiple new launches
M&M is seeing strong demand in UVs and tractors. In tractors, M&M’s market
share has moved up to 43.3% in 3Q driven by the low-cost tractor (Yuvraj), which
is seeing a strong response. M&M expects 10-12% tractor industry growth in FY12
(we expect 13%). In UVs, M&M expects 15-18% industry growth in FY12 (we
build in 15%). M&M has recently launched the ‘Genio’ - a new 1.5t pick-up on the
‘Xylo’ platform and has also launched a back-hoe loader – its first launch in the
construction equipment segment. Specific investment costs for these products are
low and profitability could be high if the market response is good. M&M will now
launch multiple new UVs and will ramp-up the ‘Yuvraj’ across India over FY12-13.
We view recent correction as an opportunity to buy
Stock has come off sharply in the last two weeks on concerns regarding the ESOP
trust share allotment as well as fears of weaker margins. We believe that the 3Q
results should allay fears of a sharp decline in margins. Our new estimates factor
in the ESOP trust dilution. We believe that improving demand-supply
fundamentals in tractors combined with M&M’s strong new launch calendar more
than offset the macro negatives plaguing the auto sector. Maintain BUY.
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