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Mahindra & Mahindra -Strong performance amid cost concerns…
Mahindra and Mahindra (M&M) reported its Q3FY11 results that were
above our estimates with topline at | 6,121 crore (I-direct estimate: |
6,025.1 crore), higher 12.6% QoQ and 36.1% YoY on volume growth of
32.5% YoY, 11.8% QoQ and realisation improvement of 0.8% QoQ and
2.7% YoY due to favourable product mix and price hikes. On the EBITDA
margins front, it saw a decline of 140 bps QoQ to 15.1% mainly due to
higher input prices (200 bps higher QoQ). On the PAT front, M&M had a
stronger than anticipated performance at | 734.7 crore driven by
exceptional income of | 117.5 crore and a strong operative performance.
The extraordinary income related to a put option exercised towards
holdings in a long term investment. Hence, on an adjusted basis, PAT
stood at | 658.3 crore (I-direct estimate: | 646.9 crore).
Highlights for the quarter
M&M has continued to witness strong growth across various segments
with the automotive segment driving ~62% of total volumes at 95,225
units. Maximmo and Gio in the sub 1-tonne carrier segment has been the
driver of volumes in the UV segment, which has jumped 9.7% QoQ to
69,197 units. On the farm equipment side (FES), M&M witnessed a market
share increase of 1.6% to reach all-time high levels of 43.3% with growth
in the high-end Arjun tractors as well as low-end Yuvraj tractors. M&M
has undertaken three new product launches in the automotive and
construction equipment segment. M&M has received creditor approval for
the completion of the acquisition of SsangYong Motor Co (SMC) and has
paid the complete deal value. M&M has anticipated positive volume
growth of 15-18% in auto and 10-12% in the FES segment.
Valuation
M&M has continued to perform well operationally and limit cost pressures
though rising input prices and interest rates rise have led to an overhang
and multiples contraction. At the current price of | 659, the stock is
trading at 13.7x FY12E EPS of | 48.0. We have valued it on an SOTP basis
with the standalone business valued at | 528/share and subsidiaries
(listed/unlisted) valued at | 213/share. Our target price of | 741 implies a
13% upside. We maintain our BUY rating on the stock.
Outlook & Valuation
We believe M&M will continue to grow faster than the industry on the FES
segment due to the demand strength originating from the weaker states
like Madhya Pradesh, Orissa along with growing acceptance of the low
15-HP Yuvraj tractor and increasing shift of existing users towards >40-
HP Arjun tractors. In the automotive segment, the Maximmo has seen a
strong volume up-tick and has garnered a market share of ~25% in one
year. We expect it to see moderate demand, going forward. The company
has launched the new Thar and Genio in the UV segments. However, the
new launch of the Xylo is expected to provide the SUV segment a volume
push in FY12. M&M has also shown interest in the growing construction
segment with the launch of back hoe loaders. On the SMC acquisition
front, the creditors of SMC have approved the deal at $463 million, which
would, in turn, cause them to accept a haircut of $100 million.
Subsequently, M&M has completely paid the remaining amount due
leading to the completion of the acquisition in a short while. Overall, we
remain positive on the business growth of the company. However, in the
near term, the commodity cycle upswing remains a concern. Also, the
across the board market multiple contraction limits our positive outlook.
Valuation
M&M has continued to perform well operationally. Also, it has limited cost
pressures though rising input prices and interest rates rise that have led
to an overhang and multiples contraction. At the current price of | 659,
the stock is trading at 13.7x FY12E EPS of | 48.0. We have valued the
standalone business at 8x FY12E EV/EBITDA to arrive at a price of |
528/share. The listed subsidiaries are valued on their current market
capitalisation basis totalling | 239.4/share. Among unlisted subsidiaries,
Mahindra Two Wheelers has been valued at | 6.6/share on a 0.5x
price/sales multiple while others have been valued at 0.5x price/book
value multiple to total |27.2/share. We have arrived at | 213.3/share value
post a 20% holding company discount. Our target price of | 741 implies a
13% upside. We have maintained our BUY rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra & Mahindra -Strong performance amid cost concerns…
Mahindra and Mahindra (M&M) reported its Q3FY11 results that were
above our estimates with topline at | 6,121 crore (I-direct estimate: |
6,025.1 crore), higher 12.6% QoQ and 36.1% YoY on volume growth of
32.5% YoY, 11.8% QoQ and realisation improvement of 0.8% QoQ and
2.7% YoY due to favourable product mix and price hikes. On the EBITDA
margins front, it saw a decline of 140 bps QoQ to 15.1% mainly due to
higher input prices (200 bps higher QoQ). On the PAT front, M&M had a
stronger than anticipated performance at | 734.7 crore driven by
exceptional income of | 117.5 crore and a strong operative performance.
The extraordinary income related to a put option exercised towards
holdings in a long term investment. Hence, on an adjusted basis, PAT
stood at | 658.3 crore (I-direct estimate: | 646.9 crore).
Highlights for the quarter
M&M has continued to witness strong growth across various segments
with the automotive segment driving ~62% of total volumes at 95,225
units. Maximmo and Gio in the sub 1-tonne carrier segment has been the
driver of volumes in the UV segment, which has jumped 9.7% QoQ to
69,197 units. On the farm equipment side (FES), M&M witnessed a market
share increase of 1.6% to reach all-time high levels of 43.3% with growth
in the high-end Arjun tractors as well as low-end Yuvraj tractors. M&M
has undertaken three new product launches in the automotive and
construction equipment segment. M&M has received creditor approval for
the completion of the acquisition of SsangYong Motor Co (SMC) and has
paid the complete deal value. M&M has anticipated positive volume
growth of 15-18% in auto and 10-12% in the FES segment.
Valuation
M&M has continued to perform well operationally and limit cost pressures
though rising input prices and interest rates rise have led to an overhang
and multiples contraction. At the current price of | 659, the stock is
trading at 13.7x FY12E EPS of | 48.0. We have valued it on an SOTP basis
with the standalone business valued at | 528/share and subsidiaries
(listed/unlisted) valued at | 213/share. Our target price of | 741 implies a
13% upside. We maintain our BUY rating on the stock.
Outlook & Valuation
We believe M&M will continue to grow faster than the industry on the FES
segment due to the demand strength originating from the weaker states
like Madhya Pradesh, Orissa along with growing acceptance of the low
15-HP Yuvraj tractor and increasing shift of existing users towards >40-
HP Arjun tractors. In the automotive segment, the Maximmo has seen a
strong volume up-tick and has garnered a market share of ~25% in one
year. We expect it to see moderate demand, going forward. The company
has launched the new Thar and Genio in the UV segments. However, the
new launch of the Xylo is expected to provide the SUV segment a volume
push in FY12. M&M has also shown interest in the growing construction
segment with the launch of back hoe loaders. On the SMC acquisition
front, the creditors of SMC have approved the deal at $463 million, which
would, in turn, cause them to accept a haircut of $100 million.
Subsequently, M&M has completely paid the remaining amount due
leading to the completion of the acquisition in a short while. Overall, we
remain positive on the business growth of the company. However, in the
near term, the commodity cycle upswing remains a concern. Also, the
across the board market multiple contraction limits our positive outlook.
Valuation
M&M has continued to perform well operationally. Also, it has limited cost
pressures though rising input prices and interest rates rise that have led
to an overhang and multiples contraction. At the current price of | 659,
the stock is trading at 13.7x FY12E EPS of | 48.0. We have valued the
standalone business at 8x FY12E EV/EBITDA to arrive at a price of |
528/share. The listed subsidiaries are valued on their current market
capitalisation basis totalling | 239.4/share. Among unlisted subsidiaries,
Mahindra Two Wheelers has been valued at | 6.6/share on a 0.5x
price/sales multiple while others have been valued at 0.5x price/book
value multiple to total |27.2/share. We have arrived at | 213.3/share value
post a 20% holding company discount. Our target price of | 741 implies a
13% upside. We have maintained our BUY rating on the stock.
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