Q2 FY13 performance surpasses expectations
M&M’s Q2 FY13 revenues were robust at Rs96.6bn, a growth of 33.4% yoy, and 4% qoq. Volumes in the quarter grew by 7% yoy and 3% qoq. Auto volumes have grown by 16.3% yoy in the quarter, while FES volumes have declined by 13% yoy during the quarter. M&M’s topline was mainly lifted by the extremely impressive growth of 24% in realizations for the third consecutive quarter. This was due to favorable product mix coming from the launch of XUV 5oo and the launch of Quanto. The growth in realizations was also in line with the price hikes of about Rs 18,000 (Rs 6,000 taken for offsetting excise duty hike and rest to nullify the RM cost hike) in the quarter on the FES side. On profitability front, EBITDA margins slightly went down to 11.4% from 11.8% qoq and 12% yoy. RM to sales grew yoy to 74.94% from 72.61%, while slightly reducing from 75.1% sequentially. Other expenses however grew to 8.82% from 8.23% qoq. Due to lower FES volumes, margins fell on the FES side to 14.8% from 15.7%, while this fall was somewhat offset by the auto EBIT margins which expanded to 9.4% from 8.8% qoq. Higher depreciation expenses which grew by 15.8% qoq and 42% yoy slightly capped the bottomline growth which would have been even higher due to the other income which grew by 30% yoy and 5x times qoq due to the dividend coming from different subsidiaries. PAT grew by 24% qoq and 22.3% yoy to Rs 9.01bn much above our and street expectations.
Outlook and Valuation
With higher expectations on the volume front on the auto side and improvement expected on the margin front, we have raised our target price to Rs1,039 from Rs 828, and value the company on FY 14E earnings of Rs62 at 14x times arriving at a value of Rs 868 from standalone business and Rs 172 from its various subsidiaries. We maintain our BUY rating on the stock with an upside of 20% from current levels.
