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Mahindra & Mahindra
Rural prosperity playing out
Tractors driving growth; Raise PO
M & M has continued to surprise us on growth of its profitable tractors business,
prompting us to raise volume assumptions slightly. This will also cushion cost
pressures and resultant decline in EBITDA margins. We also raise imputed value
of finance subsidiary, being key driver to our revised PO of Rs 825 (up 10%).
Core business demand continues to be robust
M&M’s aggregate sales grew 25% last fiscal, ahead of our estimates, with tractors
(+22% yoy) comfortably beating our expectations. We expect segment to register
mid-teens growth, thanks to rural prosperity and labour shortage driving farm
mechanisation. With respect to autos, we expect M & M to beat slowdown through
new launches, both in light commercial vehicles as well as Utility vehicles.
Financing subsidiary more valuable than earlier
Raise forecasts of M & M Financial Services, 56% owned financing arm, driven by
30% loan growth (earlier 20%) on stronger rural credit and diversification into
housing finance. We believe favourable asset-liability profile (mostly fixed term
loans) and adequate capitalisation (20% CAR) will support growth. We also raise
imputed multiple to 2x FY13E P/BV (earlier 1x) which still compares favourably to
peers, such as Shriram Transport Finance, which our banking team has assigned
multiple of 2.7x FY13E P/BV.
Revised PO offers reasonable upside
We value core business at 12x FY13E P/E, below historic multiples to factor rising
competition as well as de-rating due to grant of stock options to employees at par
in lieu of remuneration. Imputed value of operating subsidiaries at Rs188/share is
dominated by M & M Finance (Rs64/share for its M&M’s stake).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra & Mahindra
Rural prosperity playing out
Tractors driving growth; Raise PO
M & M has continued to surprise us on growth of its profitable tractors business,
prompting us to raise volume assumptions slightly. This will also cushion cost
pressures and resultant decline in EBITDA margins. We also raise imputed value
of finance subsidiary, being key driver to our revised PO of Rs 825 (up 10%).
Core business demand continues to be robust
M&M’s aggregate sales grew 25% last fiscal, ahead of our estimates, with tractors
(+22% yoy) comfortably beating our expectations. We expect segment to register
mid-teens growth, thanks to rural prosperity and labour shortage driving farm
mechanisation. With respect to autos, we expect M & M to beat slowdown through
new launches, both in light commercial vehicles as well as Utility vehicles.
Financing subsidiary more valuable than earlier
Raise forecasts of M & M Financial Services, 56% owned financing arm, driven by
30% loan growth (earlier 20%) on stronger rural credit and diversification into
housing finance. We believe favourable asset-liability profile (mostly fixed term
loans) and adequate capitalisation (20% CAR) will support growth. We also raise
imputed multiple to 2x FY13E P/BV (earlier 1x) which still compares favourably to
peers, such as Shriram Transport Finance, which our banking team has assigned
multiple of 2.7x FY13E P/BV.
Revised PO offers reasonable upside
We value core business at 12x FY13E P/E, below historic multiples to factor rising
competition as well as de-rating due to grant of stock options to employees at par
in lieu of remuneration. Imputed value of operating subsidiaries at Rs188/share is
dominated by M & M Finance (Rs64/share for its M&M’s stake).
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