India Equity Research: M and M

Mahindra & Mahindra (M&M) hosted a conference call to discuss the rationale behind acquisition of 51% stake in Peugeot Motocycles (PMTC) for EUR28mn (INR2.2bn). Key acquisition rationale were: (1) limited product development investment as PMTC’s engine platforms are robust, requiring minor adaptation; (2) PMTC’s reasonable brand equity in European markets; (3) opportunity to expand market reach as PMTC has been traditionally a European play; and (4) enhancing M&M’s 2-wheeler (2W) capability as well as widening bouquet of offering, especially in international markets like Africa/Latin America. We believe the acquisition is a logical step which will support M&M’s otherwise fledgling 2W business and help it gain scale. However, we believe that it will take long for the company to make a mark in the Indian market. We wait to see how the international business takes off post the acquisition. In our view, it will take around 2 years for benefits to reflect.

PMTC: Sharpening focus on crucial growth drivers

PMTC had been severely impacted due to significant decline in the European 2W industry (from 1.67mn units to only 0.6mn units over past decade) and its limited focus to expand beyond Europe. This led to sharp drop in revenue to EUR99mn in 2013 (EUR130mn earlier). Going ahead, M&M’s key focus areas will be: (1) leveraging the premium Peugeot brand outside European markets (exports to 60 countries); (2) augmenting global network; (3) adapting existing technology to create new products; and (4) deriving synergistic benefits in procurement and distribution model for foreign markets. Opportunity for 2W in India remains immense and with rising share of scooters, M&M could enter India at a later stage.

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14 January 2014

Mahindra & Mahindra Tractors to drive growth; Buy :: Anand Rathi

Mahindra & Mahindra
Tractors to drive growth; Buy
Key takeaways
Tractors the growth driver. After a robust performance in FY13, Mahindra
& Mahindra’s (M&M) automotive division volumes have been constrained in
9MFY14 (in 3QFY14 9.5% lower yoy). This was more than made up for by
robust tractor volumes; in 3QFY14 (as in 1HFY14), these were prolific
(growing 21% yoy). Among the automotive segments, pick-up sales were up
0.7% yoy, UVs were lower ~16% yoy, and three-wheelers were down 4.1%
yoy). M&M’s overall volumes in 2QFY14 dipped marginally, by 0.1% yoy.
3Q likely to be good. For 3Q, on yoy flat volumes, we expect 1% yoy
income dip to `106.7bn and 14.5% EBITDA growth to `13.9bn. Our
EBITDA margin expectation is 13.5% (up 230bps yoy, 70bps qoq). The
higher share of tractors in the product mix qoq could result in EBITDA
margin improving qoq. We expect the quarter’s profit, at `9.4bn, to be up
12.4% yoy.
FES to drive EBIT margins. We expect 9% EBIT margin for the
automotive division (50bps higher yoy, 40bps lower qoq) and 16.8% for the
farm-equipment segment (130bps higher yoy, 20bps lower qoq). EBIT per
tractor is expected to be 9.5% higher yoy, while EBIT per vehicle in the
automotive division is expected to be 2.8% higher yoy.
Our take. Tractors have recorded a strong recovery in 1H, with a good
trajectory in 3Q as well. For the segment, 1HCY14 should also be decent.
The higher tractor-segment growth would also result in a better operating
performance for M&M. The consolidated performance should also be good,
but Systech, and the two-wheeler business would be drags on profitability. We
have a Buy rating, with a sum-of-parts-based target of `1,037. The stock
trades at ~10.6x FY15 consolidated earnings. Risks. Downside: Delay in
rural demand recovery, keener competition, diesel price hike, negatives on the
merger of the truck business.

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12 August 2013

Mahindra & Mahindra - Change of intersegmental fortunes!!! :LKP

Inline set of numbers

M&M’s Q1 FY14 revenues came in at Rs 99bn, a growth of 7.1% yoy, and a dip of 4.3% qoq on the back of weak UV volumes. Volumes in the quarter remained flat yoy while declining by 6% qoq. Auto volumes have declined by 2.4% yoy and 17.4% yoy in the quarter, while FES volumes have shown a remarkable turnaround by posting growth of 25% yoy and 50% qoq. M&M’s realizations grew by 6% yoy and 1% qoq, on product mix tilting in favor of tractors. The growth in realizations was also in line with the price hikes of 0.5% taken this quarter in both the segments. On profitability front, EBITDA margins went up to 12.8% from 12.1% qoq and 11.8% yoy as the high margin tractors accounted for a good chunk of the volumes this quarter. RM to sales fell to 72.9% from 74.8% qoq and 75.1% yoy. Other expenses however have grown this quarter to 9.2% from 8.8% qoq as the company focused on marketing expenses on the SUV as well as the tractors side. Depreciation expenses fell by 10% yoy and grew by 2% qoq at Rs1.8 bn. Tax rate came at 23%, while interest costs grew by 7% yoy. Other income came in above our expectations at Rs1.64 bn as dividend from its subsidiaries increased significantly both on qoq as well as yoy basis. PAT increased 29% yoy to Rs9.4 bn, a growth of 29% yoy and 17% qoq mainly on the back of higher other income and better FES business performance. The company also announced its merger with Mahindra Trucks and Buses Ltd (MTBL) which will be completing in FY 15. This business has accumulated losses of Rs8.4 bn and would impact the company’s business in the short to medium term.

Outlook and Valuation

On the SUV side, in the absence of any new model from M&M’s stable in the coming two years, competitors like Renault, Maruti and Ford will be able to steal M&M’s market share in an environment which is getting difficult for UV industry tarnished by higher diesel prices and higher excise duties. On one hand where SUVs are struggling, there has been an interchange of fortunes which we can relate with the FES segment which is growing leaps and bounds. With good monsoon, higher MSPs and overall strength in the agri sector, FES segment is on a very strong footing. We therefore have increased the FES segment volume estimates, while reduced those of the UV and LCV segments. We also believe the merger of MTBL to have a negative impact on profitability in short to medium term. Softening of RM costs and stable ad spend will result in better margins though. In line with this, we have pruned down our FY14E/15E earnings estimates from Rs60/74 to Rs 54/62 and a standalone business value at Rs799 and subsidiaries value of 235 from its various subsidiaries. We maintain our BUY rating on the stock with a reduced target price of Rs 1034 and an upside of 18% from current levels.

LKP Research

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27 June 2013

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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18 June 2013

M&M : Auto-comp ambitions get a boost :CLSA

M&M has announced a strategic alliance with Spain-based auto-components
firm – CIE Auto. M&M will buy 13.5% stake in CIE Auto while CIE will buy
stakes in M&M's auto-comp subs in a largely cash-neutral deal. The key
rationale is to widen the geographical, customer & product footprint for both
firms given that there are minimal overlaps in these three areas. M&M has
struggled in the auto-comp space for the last 8 years and we believe that this
alliance has the potential of becoming value-generative in the long-term. The
fact that the transaction is largely cash-neutral also gives comfort given the
tough business environment in India and overseas. We await more details in
the concall but view it favourably based on details shared so far. Retain O-PF.

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16 June 2013

Operating performance beats estimates ; Maintain Neutral Mahindra and Mahindra :Centrum

Operating performance beats estimates ; Maintain Neutral
Mahindra and Mahindra’s (M&M) overall results for 4QFY13 were better than our expectations with standalone EBITDA margin at 12.1% compared to our estimate of 11.1%. Combined EBITDA margins for M&M + MVML stood at 14.4% largely driven by strong performance of the FES segment despite the challenging environment. Though the tractor segment has seen demand revival for April’13 and May’13, the Auto sector has started to experience pressure with flat YTDFY14 volume growth. We continue to maintain our Neutral view on the stock with revised target price of Rs.1,023 driven by upward revision in earnings and roll forward of valuations to FY15E from earlier Sept 2014.
Key Highlights:

M&M standalone: 1.) Standalone operating income for the quarter stood at Rs.104bn registering a YoY growth of 12% (drop of 2.7% QoQ) compared to our estimate of Rs.96bn. Net Automotive realizations for the quarter stood at Rs.522,157 registering a growth of 3% YoY and 2.5% QoQ. Surprisingly, Net realizations for FES (Farm Equipments Sector) stood at Rs.574,656 registering YoY growth of 8.4% and QoQ growth of 9.4%. Driven by better than expected revenue growth, EBITDA margins for standalone operations stood at 12.1% vs. our estimate of 11.1%. EBIT margins for the Automotive segment stood at 9.8% (110bps YoY and up 131bps QoQ) and for the tractor segment 16% (up 25bps YoY and 48bps QoQ). 3.) Driven by better than expected revenue growth and operating performance, Adjusted PAT for the quarter stood at Rs.7.99bn vs. our estimate of Rs.6.6bn.

M&M + MVML: M&M + MVML combined operating income for the quarter was Rs.99.8bn (up 9.5% YoY but down 2.5% QoQ). Net Automotive realizations for the quarter stood at Rs.491,125 registering a growth of 3.1% YoY and 3.2%QoQ. Surprisingly, Net realizations for FES stood at Rs.574,656 registering a growth of 8.4% YoY and 9.4% QoQ. 2.) EBITDA margins for M&M+MVML operations stood at 14.4%. EBIT margins for the Automotive segment stood at 12.4% (171bps YoY and up 126bps QoQ) and of the tractor segment 16% (up 25bps YoY and 48bps QoQ).

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08 June 2013

Tractor Recovery to Cushion UV Slowdown Notwithstanding slowdown in tractor segment, Mahindra & Mahindra (M&M)- Karvy

Tractor Recovery to Cushion UV Slowdown
Notwithstanding slowdown in tractor segment, Mahindra & Mahindra
(M&M) has delivered strong operational performance in Q4FY13. Its
operating margins rose 184 bps YoY (87 bps QoQ) to 12.1% vs. our estimate of
11%. Its revenues rose 12% YoY to Rs. 105 bn (vs. our estimate of Rs. 101 bn),
while volume grew 7% YoY to 199,105 units. Price hike and better productmix
resulted in 5% YoY rise in average realization per vehicle. Its RM/Sales
ratio dipped 75 bps YoY (110 bps QoQ) to 74.8%. M&M booked Rs. 900 mn
capital gain on stake sale of its investment in Mahindra Holidays, excluding
which its adjusted PAT rose 28.6% YoY to Rs. 8 bn. Adjusted profit of
combined entity (M&M+MVML) rose 8% YoY to Rs. 8.7 bn on revenues of Rs.
99.8 bn (up 9.6% YoY), while its EBIDTAM rose 239 bps YoY (91 bps QoQ) to
14.4% in Q4FY13.
Recovery in Tractor Segment Suffice to Offset UV Slowdown: We observed
strong positive co‐relation between tractor volume and election period during
past decades. Farm segment always benefits from election money‐flow in rural
India, which coupled with relief to farmers from government would result in
strong demand for tractors in FY15E. We expect UV growth to taper down
from ~50% to 13.5% in FY14‐15 due to high base, increase in excise duty
coupled with declining fuel price differential. We believe that strong tractor
volume would be more than enough to maintain profitability, as Tractor
segment (EBIT margin of 16%) enjoys much higher operating margin than
Auto segment (EBIT margins of 9%). We expect margin improvement of 50
bps over FY13‐15 on account of increasing contribution from Tractor segment.
Outlook & Valuation
In view of UV growth tapering down, we lower our revenue and EPS
estimates by 3% each for FY15E. Based on 8xFY15E EV/EBIDTA, we value
M&M’s standalone business at Rs. 820 (from Rs. 836 earlier). Based on
7xEV/EBIDTA, we value MVML at Rs. 67 and post‐20% Hold Co discount, we
value subsidiary at Rs. 263 per share (from Rs. 247 earlier). We reiterate our
“BUY” recommendation on M&M and maintain our SOTP‐based target price
of Rs. 1,150 per share, primarily on account of increasing value of its
subsidiary supported by their improved financial performance.

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07 June 2013

GMDC - RU4QFY2013 Aurobindo Pharma - RU4QFY2013 Sadbhav Engineering - RU4QFY2013 Steel Authority of India - RU4QFY2013 Mahindra and Mahindra - RU4QFY2013 Madras Cements - RU4QFY2013 ONGC - RU4QFY2013 Unity Infraprojects - RU4QFY2013 Jyoti Structures - RU4QFY2013 :: Angel Broking PDF links

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GMDC - RU4QFY2013

Aurobindo Pharma - RU4QFY2013

Sadbhav Engineering - RU4QFY2013

Steel Authority of India - RU4QFY2013

Mahindra and Mahindra - RU4QFY2013

Madras Cements - RU4QFY2013

ONGC - RU4QFY2013

Unity Infraprojects - RU4QFY2013

Jyoti Structures - RU4QFY2013

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01 June 2013

Mahindra & Mahindra - FES business expected to enter positive cycle ::LKP

Q4 results above expectations

M&M’s Q4 FY13 revenues came in at Rs 103bn, a growth of 12% yoy, and a dip of 2.7% qoq. Volumes in the quarter grew by 6.2% yoy while declining by 6.8% qoq. Auto volumes have grown by 1.4% qoq and 10% yoy in the quarter, while FES volumes have declined by 23% yoy and 5.4% qoq. M&M’s realizations grew by a robust 16% yoy and 2% qoq, which was the impact of price hikes taken last quarter and improved product mix on the UV side (higher number of XUV 5oo and Quanto). The growth in realizations was also in line with the price hikes of 4.5% taken YTD on the FES side and 2% in auto segment in December. Also, the company is out of the race of giving any discounts on any of its vehicles except trucks. This has also led to a good growth in pricing, however, the company has lost some of its FES market share to 40.2%, down by 1.2%. On profitability front, EBITDA margins went up to 12.11% from 11.24% qoq and 10.3% yoy. RM to sales fell to 74.82% from 75.9% qoq and 75.52% yoy. Other expenses however have grown slightly to 8.8% from 8.2% qoq as the company spent on Quanto launch post a few months of its launch.

There was a strong surge in the segmental EBIT margins as auto margins went up to 12.4% on account of higher sale of high margin vehicles, while FES margins went up to 16%. Realizations on the FES side also moved up by 9.3% as the product mix on the back of improved product mix and price hikes taken in Q3. Depreciation expenses grew by 41% yoy and 2% qoq at Rs1,986mn. Tax rate came at 28%, while interest costs fell by 28% yoy as the company is reducing its debt. PAT adjusted for a Rs0.8 bn extraordinary income grew by 4% yoy, while fell by 4% to Rs 7.9bn, which was still above market expectations of Rs 7.7bn. Reported PAT came in at Rs8.89bn.

Outlook and valuation

Although the company is not launching any major vehicles in FY 14, FY 15 will see some major launches on both M&M as well as Ssangyong side, whose demand and profitability are on an upmove. Also general elections coming up within next one year, we see a demand boost in FY 15E. We see also see improvement in FES segment in line with the management view. With pricing discipline seen on the FES side with zero discounting and price hikes taken, we see margin picture improving for M&M. Also increasing sales of high margin SUVs will help the cause. Softening of RM costs and stable ad spend will result in better margins. We have slightly increased our FY14E earnings to Rs 61.2 from Rs 60 based on higher expectations from FES segment. We now roll over our estimates to FY 15E and value the company on FY 15E earnings of Rs75.7 at 12x times arriving at a value of Rs908 from standalone business and Rs 211 from its various subsidiaries. We maintain our BUY rating on the stock with an upside of 15% from current levels.

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05 November 2012

Kotak Top Pick - 5th November 2012 ::Mahindra & Mahindra (M&M

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29 October 2012

Mahindra & Mahindra - “Riding on the automotive segment”:: LKP

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.

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28 October 2012

Short Takes - L&T maintains order flow momentum :: Business Line

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27 September 2012

BUY’ : MAHINDRA & MAHINDRA LIMITED:: Hedge Sec

Business Summary Mahindra & Mahindra Limited (MML) is India’s leading automobile and farm equipment manufacturer that enjoys leadership in the UV (Utility Vehicle) segment and the tractor segment (global leader). The company also derives value as a holding company.

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20 September 2012

Mahindra and Mahindra - Quanto to target entry level sedans ::Edelweiss

Mahindra and Mahindra (M&M) has launched ‘Quanto’, a mini SUV at a price range of INR 582,000- 736,000 (ex-showroom Thane). The price is in-line with our expectations though it is higher than the rumoured INR500,000. The company wants to target customers willing to upgrade to entry level sedans. Success of this new product should further strengthen M&M’s position in the fast growing utility vehicle (UV) segment and compensate for the current weakness in the tractor segment. We recommend ‘BUY’ with a target price of INR839.

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