M&M-4QFY13 Results Review: Management upbeat on tractor segment recovery, re-iterate OW: JPM

 4QFY13 Adjusted PAT of Rs 8.2bn (+26% y/y) was ahead of our and
street estimates – the variance was driven by improved profitability.
EBITDA Margin came in at 12.1% (+90bp q/q) driven by higher
margins both in the automotive and FES divisions. (The reported PAT of
Rs.8.9B included profit of Rs.906m from the sale of Mahindra Holiday
shares). We re-iterate our OW stance on M&M – given the expected
revival in the high margin tractor segment.

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 Analyst meet takeaways: Demand Outlook: Management expects the
tractor segment to grow at between 6-8% in FY14E (growth could
surprise on the upside), given expectations of a normal monsoon. (After
two years of sedate sales, the healthy demand in April is indicative of a
market recovery). While management guided to a growth rate of 10-12%
for SUVs, they highlighted that the environment remains uncertain,
given the increased excise duties and weak consumer sentiment New
Product launches: The OEM is working on a joint product development
program with Ssangyong, with the model roll out expected in 2HFY15.
The new tractor plant in Zaheerabad has commenced operations and is
currently operating on single shift basis. Ssangyong: The Korean OEM
has reported record monthly sales in April (highest in the past six years),
driven by the Korando. While the financials have improved,
management expects break even only in FY15. Ssangyong & Mahindra
are jointly developing a new series of engines, that will power their
vehicles in FY15. Capex: Capex guidance is unchanged at Rs.75B over
the next three years.
 Price Target: We are raising our standalone estimates by ~3% over
FY14/15E to factor in the healthy 4Q results. We are rolling forward our
PT timeframe to Mar’14 and set a revised PT of Rs.1,130 – based on
sum-of-parts methodology. Downside risks: Sharper than expected
increase in competition in the SUV segment. Also, any delayed
turnaround at its two wheeler and CV subsidiaries.