Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Operational performance in line with estimates
Mahindra & Mahindra’s (M&M) EBITDA, of INR 9.2 bn (up 35% Y-o-Y and 9% Q-o-
Q), was in line with our estimates. Adjusted PAT, at INR 6.2 (up 44% Y-o-Y), was
however below expectations on account of higher-than-expected tax rate.
Weathering pressures, maintaining margins
The company partially offset pressure from rising input prices (up 110bps Q-o-Q
and 220 bps Y-o-Y) with a price hike as well as operating leverage benefits (staff
costs declined 50bps Q-o-Q). EBITDA margins, thus, remained high at 15.1%
(down 10bps Y-o-Y and 70bps Q-o-Q). Realisation was moderately higher on
account of price hikes and favourable product mix (tractors accounted for 39% of
volumes versus 35% previously).
Ssangyong takeover to be shortly completed
Management has made the full payment of USD 463 mn for acquiring the
controlling stake (70%) in Ssangyong; in the next few weeks, the company will
complete all formalities towards this debt-free acquisition. We are enthused by
Ssangyong’s recent performance (strong volume growth, positive EBITDA
margins) and strong strategic benefits ensuing for M&M from its acquisition
(technology, distribution synergies).
Management outlook: Cautiously positive
M&M remains positive on the demand outlook across its product categories.
Despite potential headwinds (higher interest rates and crude oil prices),
management expects the tractor industry to grow at ~12% p.a. in FY12, while
the automotive segment could be up 15-18%. Management expects commodity
pressures to continue in the near term; it is, however, hopeful of maintaining
margins through better product mix, value engineering and cost reduction.
Outlook and valuations: Positive; maintain ‘BUY’
The company’s growth momentum remains strong across key segments - utility
vehicles and tractors. With a rich product pipeline, we believe the company is an
ideal play on the Indian economy. We tweak our EPS estimates to take into
account the equity dilution (3%) related to ESOP issuances. Our SOTP-based
target price is at INR 820, valuing the automobile business at INR 616
(13xFY12E core EPS) and subsidiaries at INR 204. M&M remains our top pick in
the automobile space. We maintain our ‘BUY/Sector Outperformer’ rating on
the stock.
Other concall takeaways
• Tractors – Yuvraj picking up: The company indicated that its newly launched low
powered (15 hp), Yuvraj, is currently doing a monthly run rate of 800 tractors; it
maintained a bullish stance on the product. With respect to macro trend, the
company said it is witnessing demand shift to higher end segment of the tractors i.e.
above 40hp.
• Automotive – New launches to drive growth: During the past three months, the
company has launched three new models in automotive segment i.e. Thar (off road
UV), Genio (pick up version of Xylo) and made its foray in construction equipment
space. With respect to Maxximo (sub 1MT), it has ramped up the monthly capacity to
4,500 units and is operating at full capacity.
Company Description
M&M is the flagship company of the Mahindra Group, present in diverse business areas.
It is the leader in UVs (56%) and tractors (41%), and is growing significantly in financial
services, tourism, infrastructure development, trade and logistics through its various
subsidiaries and associate company. Besides thriving in UV and tractor businesses, the
company has a sizeable market share in the LCV market (~30%), three wheelers (7%)
and two wheelers (~5%). To venture into the MHCV space, M&M would be launching
trucks ranging between 16MT and 49MT, in collaboration with Navistar International USA
Inc. Also, M&M has commissioned phase I of the Chakan plant with installed capacity of
300,000 unit’s p.a. at an investment of above INR 40 bn.
Investment Theme
M&M maintains its strong leadership position in the tractor and utility vehicle space. Both
these segments are expected to post strong volume growth – tractors will benefit from
structural shift in the rural markets while Utility vehicles are likely to benefit from India
moving up the “J” curve. The Ssangyong acquisition and entry into the two wheeler
space are likely to add value over the medium term. Despite strong capex, M&M’s
cashflows are likely to remain positive. With reasonable valuations, the stock looks
attractive.
Key Risks
• Managing a complex group structure
• Lack of clarity on capex
• Entry in new businesses could be unproductive
• Fail to revive the ailing operations of the recently acquired Ssangyong.
• Increasing competition, particularly in LCV space
• Specific risks in Mahindra Satyam
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Operational performance in line with estimates
Mahindra & Mahindra’s (M&M) EBITDA, of INR 9.2 bn (up 35% Y-o-Y and 9% Q-o-
Q), was in line with our estimates. Adjusted PAT, at INR 6.2 (up 44% Y-o-Y), was
however below expectations on account of higher-than-expected tax rate.
Weathering pressures, maintaining margins
The company partially offset pressure from rising input prices (up 110bps Q-o-Q
and 220 bps Y-o-Y) with a price hike as well as operating leverage benefits (staff
costs declined 50bps Q-o-Q). EBITDA margins, thus, remained high at 15.1%
(down 10bps Y-o-Y and 70bps Q-o-Q). Realisation was moderately higher on
account of price hikes and favourable product mix (tractors accounted for 39% of
volumes versus 35% previously).
Ssangyong takeover to be shortly completed
Management has made the full payment of USD 463 mn for acquiring the
controlling stake (70%) in Ssangyong; in the next few weeks, the company will
complete all formalities towards this debt-free acquisition. We are enthused by
Ssangyong’s recent performance (strong volume growth, positive EBITDA
margins) and strong strategic benefits ensuing for M&M from its acquisition
(technology, distribution synergies).
Management outlook: Cautiously positive
M&M remains positive on the demand outlook across its product categories.
Despite potential headwinds (higher interest rates and crude oil prices),
management expects the tractor industry to grow at ~12% p.a. in FY12, while
the automotive segment could be up 15-18%. Management expects commodity
pressures to continue in the near term; it is, however, hopeful of maintaining
margins through better product mix, value engineering and cost reduction.
Outlook and valuations: Positive; maintain ‘BUY’
The company’s growth momentum remains strong across key segments - utility
vehicles and tractors. With a rich product pipeline, we believe the company is an
ideal play on the Indian economy. We tweak our EPS estimates to take into
account the equity dilution (3%) related to ESOP issuances. Our SOTP-based
target price is at INR 820, valuing the automobile business at INR 616
(13xFY12E core EPS) and subsidiaries at INR 204. M&M remains our top pick in
the automobile space. We maintain our ‘BUY/Sector Outperformer’ rating on
the stock.
Other concall takeaways
• Tractors – Yuvraj picking up: The company indicated that its newly launched low
powered (15 hp), Yuvraj, is currently doing a monthly run rate of 800 tractors; it
maintained a bullish stance on the product. With respect to macro trend, the
company said it is witnessing demand shift to higher end segment of the tractors i.e.
above 40hp.
• Automotive – New launches to drive growth: During the past three months, the
company has launched three new models in automotive segment i.e. Thar (off road
UV), Genio (pick up version of Xylo) and made its foray in construction equipment
space. With respect to Maxximo (sub 1MT), it has ramped up the monthly capacity to
4,500 units and is operating at full capacity.
Company Description
M&M is the flagship company of the Mahindra Group, present in diverse business areas.
It is the leader in UVs (56%) and tractors (41%), and is growing significantly in financial
services, tourism, infrastructure development, trade and logistics through its various
subsidiaries and associate company. Besides thriving in UV and tractor businesses, the
company has a sizeable market share in the LCV market (~30%), three wheelers (7%)
and two wheelers (~5%). To venture into the MHCV space, M&M would be launching
trucks ranging between 16MT and 49MT, in collaboration with Navistar International USA
Inc. Also, M&M has commissioned phase I of the Chakan plant with installed capacity of
300,000 unit’s p.a. at an investment of above INR 40 bn.
Investment Theme
M&M maintains its strong leadership position in the tractor and utility vehicle space. Both
these segments are expected to post strong volume growth – tractors will benefit from
structural shift in the rural markets while Utility vehicles are likely to benefit from India
moving up the “J” curve. The Ssangyong acquisition and entry into the two wheeler
space are likely to add value over the medium term. Despite strong capex, M&M’s
cashflows are likely to remain positive. With reasonable valuations, the stock looks
attractive.
Key Risks
• Managing a complex group structure
• Lack of clarity on capex
• Entry in new businesses could be unproductive
• Fail to revive the ailing operations of the recently acquired Ssangyong.
• Increasing competition, particularly in LCV space
• Specific risks in Mahindra Satyam
No comments:
Post a Comment