Launches to be major trigger for growth!!! • Mahindra & Mahindra (M&M) :: ICICI Securities, PDF link

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Launches to be major trigger for growth!!!
• Mahindra & Mahindra (M&M) numbers include consolidation of
Mahindra Trucks & Bus Ltd, making YoY comparison meaningless
• Revenues at ~| 9544 crore (~7% YoY growth) came in lower than
our estimate of ~| 9806 crore. Margins at 10.7% were much below
expectation of 12.9% due to significantly higher other expenses
• Lower-than-expected tax rate and higher-than-expected other
income boosted PAT. Consequently, M&M reported a PAT of | 947
crore, which came in slightly lower than our estimates (| 959 crore)
New platform launches to drive volumes, market share in FY16E-17E
The M&M utility vehicle portfolio has seen a significant market share
erosion over the past year owing to lack of a strong offering (only Quanto)
in the compact SUV segment, where Duster and Ecosport have grown
strongly. M&M’s market share in the overall UV segment has, thus,
declined from ~56% in FY12 to ~42% in FY14E. However, with M&M
launching two new platforms in FY16E in the compact SUV segment, we
expect M&M to regain market share as volumes improve. We also expect
an improvement in volumes for the pick-up and HCV segments, as
industrial activity levels in the country improve.
FES segment to remain cash cow with strong margins, market share
With a strong margin profile and relatively low capex & product
development expenses, the FES segment is a cash-cow business in
M&M’s portfolio. We believe, as farm mechanisation levels increase and
MSPs for food grains continue to remain strong, the FES segment is likely
to witness continued momentum in the next few years. With M&M
outpacing the industry, its market share has been on the uptrend and
currently stands at ~44% (highest in three years). With an increase in >30
HP tractor volumes, realisations are likely to remain on the uptrend. With
new platforms being a rarity in the tractor business, response to M&M’s
newly launched platform (first in 12 years) is awaited.
Subsidiary performance continues to be impressive across segments
Along with strength of the core business, the performance of subsidiaries
has also continued to remain impressive across business areas like
financials, information technology, infrastructure, hospitality, etc. In
addition, its automotive subsidiary in South Korea, SsangYong Motors,
has turned around post acquisition in the FY11 entity. Synergy benefits
with SsangYong like platform sharing, R&D, common sourcing, etc. are
likely to bring in longer-term benefits to M&M’s plans to scale up globally.
With room for more partnerships/JVs in related areas in the future,
sustained growth for the conglomerate is likely to continue in the future.
Valuations alluring as long term business case remains strong!
M&M’s ability to sustain profitability despite pressure on volumes, owing
to its diversified nature is a strong demonstration of business strength.
However, with no new product launches in the UV1 segment leading to
loss of market share, coupled with poor monsoons that have led to a
slowdown in tractor volumes, this years’ performance has been subdued.
However, these factors are unlikely to persist in the long-term. The core
valuations (~6x EV/EBITDA FY17E, ~12x FY17E EPS) are alluring vis-à-vis
other OEMs considering the strong recovery possibility. The strong
performance of subsidiaries also lends significant cushion from a
valuation perspective. We value the stock on a SOTP basis, valuing the
core business at 7.5x EV/EBITDA FY17E to | 877 and subsidiaries at | 580
to arrive a SOTP target price of | 1457. We recommend BUY.

LINK
http://content.icicidirect.com/mailimages/IDirect_MahindraMahindra_Q2FY15.pdf