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A higher tax rate and raw material costs hit 3Q, but PBT was in line. Building in a recent
volume surprise and relatively better pricing power, we slightly reduce our FY11-12F EPS
due to high commodity-cost pressure. Rural demand drives our Buy rating; our new Rs834
TP results from lower stock prices for subsidiaries.
Quarterly results – in line PBT, but higher tax rate affects PAT
3Q results for parent M&M were in line on PBT as higher other income and lower
depreciation helped overcome EBITDA that was 4% lower than we expected. EBITDA
margin dipped 70bp qoq to 15.1%, due to higher raw material costs. However, a sharply
higher income tax rate of 28.7% in 3Q vs 22.8% in 1H led to an 8% disappointment on
normalised PAT of Rs6.17bn. The one-time gain of Rs1.18bn from exercising the Owens
Corning put option boosted reported PAT to Rs7.35bn. Quarterly EPS was Rs10.5 for the
parent M&M and Rs12.7 for the consolidated entity.
We maintain our FY11-12F EBITDA and marginally reduce FY11-12F PAT
Building in recent strong volume growth in SUVs, one-ton trucks and tractors and relatively
better pricing power in those segments (compared with other auto segments), we broadly
maintain our FY11-12F EBITDA. We build into our model margin pressure of 60bp in FY12
vs 1HFY11. However, building in a higher tax rate (150bp) and recent equity capital
expansion from ESOP issuance trims FY11/12F EPS 2%/3%. The strong new product
pipeline (new SUV, small MPV) and ramp-up of the new one-ton truck, Yuvraj tractor and
Navistar trucks should help improve market share in FY12.
Relative better pricing power product portfolio; Buy, new Rs834 target price
We see a high short-term risk of the duty on diesel cars/SUVs being raised, but see a limited
impact on profits, as only about 30% of the parentco’s profits are exposed to SUVs. But, the
relatively better pricing power in tractors and pick-up trucks, which form a larger part of profits,
should limit the impact of rising commodity costs. The parentco relies heavily on demand from
rural areas (70% of annual sales volume), which should be the ultimate beneficiaries of rising
food-price inflation, as farmers’ incomes grow. We therefore reiterate Buy at an FY12F P/BV
valuation of 3x for the parent and 2.5x for the consolidated entity. We lower our subsidiaries price
by 14% to Rs160.3 to reflect a fall in their listed prices, mainly of Mahindra Finance and Tech
Mahindra, but maintain our parent target PE for FY12F.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A higher tax rate and raw material costs hit 3Q, but PBT was in line. Building in a recent
volume surprise and relatively better pricing power, we slightly reduce our FY11-12F EPS
due to high commodity-cost pressure. Rural demand drives our Buy rating; our new Rs834
TP results from lower stock prices for subsidiaries.
Quarterly results – in line PBT, but higher tax rate affects PAT
3Q results for parent M&M were in line on PBT as higher other income and lower
depreciation helped overcome EBITDA that was 4% lower than we expected. EBITDA
margin dipped 70bp qoq to 15.1%, due to higher raw material costs. However, a sharply
higher income tax rate of 28.7% in 3Q vs 22.8% in 1H led to an 8% disappointment on
normalised PAT of Rs6.17bn. The one-time gain of Rs1.18bn from exercising the Owens
Corning put option boosted reported PAT to Rs7.35bn. Quarterly EPS was Rs10.5 for the
parent M&M and Rs12.7 for the consolidated entity.
We maintain our FY11-12F EBITDA and marginally reduce FY11-12F PAT
Building in recent strong volume growth in SUVs, one-ton trucks and tractors and relatively
better pricing power in those segments (compared with other auto segments), we broadly
maintain our FY11-12F EBITDA. We build into our model margin pressure of 60bp in FY12
vs 1HFY11. However, building in a higher tax rate (150bp) and recent equity capital
expansion from ESOP issuance trims FY11/12F EPS 2%/3%. The strong new product
pipeline (new SUV, small MPV) and ramp-up of the new one-ton truck, Yuvraj tractor and
Navistar trucks should help improve market share in FY12.
Relative better pricing power product portfolio; Buy, new Rs834 target price
We see a high short-term risk of the duty on diesel cars/SUVs being raised, but see a limited
impact on profits, as only about 30% of the parentco’s profits are exposed to SUVs. But, the
relatively better pricing power in tractors and pick-up trucks, which form a larger part of profits,
should limit the impact of rising commodity costs. The parentco relies heavily on demand from
rural areas (70% of annual sales volume), which should be the ultimate beneficiaries of rising
food-price inflation, as farmers’ incomes grow. We therefore reiterate Buy at an FY12F P/BV
valuation of 3x for the parent and 2.5x for the consolidated entity. We lower our subsidiaries price
by 14% to Rs160.3 to reflect a fall in their listed prices, mainly of Mahindra Finance and Tech
Mahindra, but maintain our parent target PE for FY12F.
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