Mahindra & Mahindra - "Sailing through rough waters" ::LKP

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Results above expectations, margins surprise

Mahindra and Mahindra (M&M)’s Q1 FY12 results were above our expectations as net realizations grew by 8% yoy and 6% qoq on a better product mix supported by robust tractor growth. Volumes during the quarter grew by 19% yoy, while fell by 6% qoq to 1.56 lakhs on seasonality. EBITDA margins came in at 13.3% on cost control measures taken on the other expenses side (8.9% of sales v/s 9.31% yoy and 10.35% qoq). RM costs to sales were high at 71.8%, which the management said was stable throughout the quarter and expects it to come down on softening of commodity prices. Including MVML’s financials, margins were at 14.22%. Net profits grew by 8% yoy to Rs6.05bn on strong topline growth of 30% yoy and robust operational performance and tax rate at 25.7%.

Handsome market share gain was the highlight of the quarter, volumes to grow on new launches

M&M’s Passenger UV market share in the quarter grew by 4.5% yoy to reach 56.2%, while tractor segment market share grew by 2.3% to 43%. In the MPV van segment, where M&M launched Gio compact cab and Maximo Mini Van a few months back, the company sold ~4100 units together in Q1 garnering a market share of 7%, while Maxximo goods carrier continued with a stable market share of 23%. Going forward, with the upcoming launches of SUV W201, 2 versions of Verito, and one product each from Ssangyong’s and Reva’s stable we believe the company will gain more market share. With no competitive launches in the tractor segment in the past nine months tractor market share has gone up and will continue to do so with the expansion in capacity of Yuvraj tractors to 1,500 p.m. from current 1,000 p.m. and the product gaining a pan India presence. In FY 13, as the new tractor plant with 60,000 p.a. capacity comes up in A.P., we expect further traction in tractor volumes.

Price hikes, better product mix and commodity prices stabilizing to augur well for margins

Recent price hikes of 1-2% taken on tractor as well as UV side will show its impact well in Q2, while product mix expected to show growth in tractor segment this quarter on higher MSPs will also show a better margin picture in Q2. Going forward, management is expecting commodity prices to soften which will improve the higher tractor margins as compared to UVs as steel and rubber the main components of tractor are showing a decline.

Risks and concerns

Dual pricing of diesel/ excise duty hike on diesel cars remains the main overhang on the stock.

Outlook and valuation

On better than expected Q1 performance and expectations of better margin performance and gain of market share with recent and upcoming product launches, we are slightly increasing our target price to Rs.831 (Standalone value of Rs.684 @12.5x times FY 13E EPS of Rs.54.7 and subsidiary value of Rs.147).