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Mahindra & Mahindra (MM)
Automobiles
Strong performance in a tough environment. M&M’s 1QFY12 results were
operationally in line with our estimates but slightly ahead of Street estimates. Sharp rise
in raw material expenses were offset by lower other expenses. Net profit of Rs6.05 bn
(+8% yoy, flat qoq) was 8% below our estimates driven by lower other income. We
upgrade the stock to BUY (from ADD) driven by steady volume growth and
expectations of improvement in EBITDA margins due to lower raw material costs.
Lower other expenses offset sharp rise in raw material costs in 1QFY12
M&M net profit of Rs6.05 bn (+8% yoy, flat qoq) was 8% below our estimates driven by lower
other income. EBITDA of Rs8.97 bn (+16% yoy, 4% qoq) was 3% below our estimates driven by
higher raw material costs offset by lower other expenses. Gross margins declined by 120 bps qoq
driven by a significant increase in raw material costs, especially in the tractor business. Staff costs
were slightly lower than our estimate due to lower ESOP expenses during the quarter, in our view.
Average net realizations increased by 2.8% qoq due to lower excise duty. Average selling prices
for both utility vehicle and tractor segments increased by 1% qoq. EBITDA margins were 13.3% in
1QFY12 (+60 bps qoq) which was 40 bps below our estimates due to higher raw material costs.
Volume growth expected to moderate but margins could improve on lower raw material cost
Management has downgraded its domestic utility vehicle industry volume growth forecast to 10%
yoy in FY2012E (from 12% earlier) but retained domestic tractor industry volume growth forecast
of 11-12% yoy in FY2012E. We believe M&M is likely to gain market share in FY2012E driven by
strong demand for Bolero and Scorpio. Both models are currently on waiting periods. We forecast
a 12% and 14% yoy volume growth for domestic utility vehicle and tractor volumes for M&M in
FY2012E. We also expect EBITDA margins to improve by 50-60 bps in 2HFY12E driven by lower
rubber prices.
We upgrade the stock to BUY (from ADD) due to attractive valuations
M&M trades at 10.3X on our FY2013E EPS (ex subsidiary value) which we believe offers an entry
opportunity. Key triggers for the stock price in our view could be – improvement in EBITDA
margins from current levels due to lower raw material costs and reasonable strong volume growth
driven by market share gains in a tough environment.
We reduce our target price to Rs780 (from Rs800) due to lower-than-expected other income in
1QFY12 and we have made marginal downward revision in our earnings estimates due to lower
other income. We value the stock on sum of the parts valuation methodology. We value the
standalone operations at Rs607/share based on 13X on our FY2013E EPS (ex dividends from
subsidiaries) and value the subsidiaries at Rs173/share (based on 20% discount to KIE target
prices).
Operationally in-line quarter; upgrade to BUY
M&M net profit of Rs6.05 bn (+8% yoy, flat qoq) was 8% below our estimates driven by
lower other income. EBITDA of Rs8.97 bn (+16% yoy, 4% qoq) was 3% below our
estimates driven by higher raw material costs offset by lower other expenses. Gross margins
declined by 120 bps qoq driven by significant increase in raw material costs, especially in the
tractor business. Staff costs were slightly lower than our estimate due to lower ESOP
expenses during the quarter, in our view.
Average net realizations increased by 2.8% qoq due to lower excise duty. Average selling
prices for both utility vehicle and tractor segments increased by 1% qoq.
EBITDA margins were 13.3% in 1QFY12 (+60 bps qoq) which was 40 bps below our
estimates due to higher raw material costs. EBIT margin for automotive segment including
MVML was 10.7% in 1QFY12 (declined by 130 bps qoq) while tractor EBIT margins were
16% in 1QFY12 (declining by 100 bps qoq).
We also attended a conference call hosted by management after the results. Key
takeaways are as follows:
Management has downgraded their domestic utility vehicle industry volume growth
forecast to 10% (from 12% earlier) for FY2012E while kept their domestic tractor
industry volume growth forecast unchanged at 11-12% for FY2012E. Company has
increased its market share by 10.7% yoy in the domestic utility vehicle segment and by
2.3% yoy in the domestic tractor industry in 1QFY12.
Management indicated that volume growth is likely to moderate going forward but
expects M&M to outperform the industry. Bolero, Scorpio and pick-ups are on waiting,
according to the management. Inventory levels at the dealer end are also at normal levels.
We forecast a 12% yoy growth in domestic utility vehicle volumes and 14% yoy growth
in tractor volumes in FY2012E which reflects a slowdown in volume growth in 2HFY12E.
New products like Maxximo min van, new Verito have been well received in the market.
Maxximo mini van has already taken a 30% market share in its respective segment.
Company plans to launch new SUV, two new versions of Verito and Korando C launch in
India over the course of this financial year.
Company has also taken a 1% price increase on its utility vehicle models and a slight
price increase on Swaraj tractors.
Material cost pressures are moderating and we expect commodity costs to decline from
2HFY12E onwards due to fall in rubber prices. Steel prices are likely to remain firm as per
M&M due to shortage of iron ore. We factor in 50-60 bps improvement in EBITDA
margins from 2HFY12E onwards.
EBITDA margins including MVML (100% manufacturing subsidiary at Chakan) was
14.2% in 1QFY12, higher than reported 13.3% in the standalone operations. We do not
value MVML separately as of now as it does contract manufacturing for both M&M and
MVNAL (51:49 joint venture between M&M and Navistar for manufacturing commercial
vehicles).
We upgrade the stock to BUY (from ADD) on attractive valuations after a sharp fall in stock
price on concerns that the government is likely to levy a additional excise duty on diesel
passenger vehicles. We reduce our target price to Rs780 (from Rs800) due to lower-thanexpected
other income in 1QFY12 and we have made marginal downward revisions in our
earnings estimates due to lower other income. We value the stock on sum of the parts
valuation methodology. We value the standalone operations at Rs607/share based on 13X
on our FY2013E EPS (ex dividends from subsidiaries) and value the subsidiaries at
Rs173/share (based on 20% discount to KIE target prices). Stock is attractively valued at
10.3X on our FY2013E EPS (excluding subsidiary value).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra & Mahindra (MM)
Automobiles
Strong performance in a tough environment. M&M’s 1QFY12 results were
operationally in line with our estimates but slightly ahead of Street estimates. Sharp rise
in raw material expenses were offset by lower other expenses. Net profit of Rs6.05 bn
(+8% yoy, flat qoq) was 8% below our estimates driven by lower other income. We
upgrade the stock to BUY (from ADD) driven by steady volume growth and
expectations of improvement in EBITDA margins due to lower raw material costs.
Lower other expenses offset sharp rise in raw material costs in 1QFY12
M&M net profit of Rs6.05 bn (+8% yoy, flat qoq) was 8% below our estimates driven by lower
other income. EBITDA of Rs8.97 bn (+16% yoy, 4% qoq) was 3% below our estimates driven by
higher raw material costs offset by lower other expenses. Gross margins declined by 120 bps qoq
driven by a significant increase in raw material costs, especially in the tractor business. Staff costs
were slightly lower than our estimate due to lower ESOP expenses during the quarter, in our view.
Average net realizations increased by 2.8% qoq due to lower excise duty. Average selling prices
for both utility vehicle and tractor segments increased by 1% qoq. EBITDA margins were 13.3% in
1QFY12 (+60 bps qoq) which was 40 bps below our estimates due to higher raw material costs.
Volume growth expected to moderate but margins could improve on lower raw material cost
Management has downgraded its domestic utility vehicle industry volume growth forecast to 10%
yoy in FY2012E (from 12% earlier) but retained domestic tractor industry volume growth forecast
of 11-12% yoy in FY2012E. We believe M&M is likely to gain market share in FY2012E driven by
strong demand for Bolero and Scorpio. Both models are currently on waiting periods. We forecast
a 12% and 14% yoy volume growth for domestic utility vehicle and tractor volumes for M&M in
FY2012E. We also expect EBITDA margins to improve by 50-60 bps in 2HFY12E driven by lower
rubber prices.
We upgrade the stock to BUY (from ADD) due to attractive valuations
M&M trades at 10.3X on our FY2013E EPS (ex subsidiary value) which we believe offers an entry
opportunity. Key triggers for the stock price in our view could be – improvement in EBITDA
margins from current levels due to lower raw material costs and reasonable strong volume growth
driven by market share gains in a tough environment.
We reduce our target price to Rs780 (from Rs800) due to lower-than-expected other income in
1QFY12 and we have made marginal downward revision in our earnings estimates due to lower
other income. We value the stock on sum of the parts valuation methodology. We value the
standalone operations at Rs607/share based on 13X on our FY2013E EPS (ex dividends from
subsidiaries) and value the subsidiaries at Rs173/share (based on 20% discount to KIE target
prices).
Operationally in-line quarter; upgrade to BUY
M&M net profit of Rs6.05 bn (+8% yoy, flat qoq) was 8% below our estimates driven by
lower other income. EBITDA of Rs8.97 bn (+16% yoy, 4% qoq) was 3% below our
estimates driven by higher raw material costs offset by lower other expenses. Gross margins
declined by 120 bps qoq driven by significant increase in raw material costs, especially in the
tractor business. Staff costs were slightly lower than our estimate due to lower ESOP
expenses during the quarter, in our view.
Average net realizations increased by 2.8% qoq due to lower excise duty. Average selling
prices for both utility vehicle and tractor segments increased by 1% qoq.
EBITDA margins were 13.3% in 1QFY12 (+60 bps qoq) which was 40 bps below our
estimates due to higher raw material costs. EBIT margin for automotive segment including
MVML was 10.7% in 1QFY12 (declined by 130 bps qoq) while tractor EBIT margins were
16% in 1QFY12 (declining by 100 bps qoq).
We also attended a conference call hosted by management after the results. Key
takeaways are as follows:
Management has downgraded their domestic utility vehicle industry volume growth
forecast to 10% (from 12% earlier) for FY2012E while kept their domestic tractor
industry volume growth forecast unchanged at 11-12% for FY2012E. Company has
increased its market share by 10.7% yoy in the domestic utility vehicle segment and by
2.3% yoy in the domestic tractor industry in 1QFY12.
Management indicated that volume growth is likely to moderate going forward but
expects M&M to outperform the industry. Bolero, Scorpio and pick-ups are on waiting,
according to the management. Inventory levels at the dealer end are also at normal levels.
We forecast a 12% yoy growth in domestic utility vehicle volumes and 14% yoy growth
in tractor volumes in FY2012E which reflects a slowdown in volume growth in 2HFY12E.
New products like Maxximo min van, new Verito have been well received in the market.
Maxximo mini van has already taken a 30% market share in its respective segment.
Company plans to launch new SUV, two new versions of Verito and Korando C launch in
India over the course of this financial year.
Company has also taken a 1% price increase on its utility vehicle models and a slight
price increase on Swaraj tractors.
Material cost pressures are moderating and we expect commodity costs to decline from
2HFY12E onwards due to fall in rubber prices. Steel prices are likely to remain firm as per
M&M due to shortage of iron ore. We factor in 50-60 bps improvement in EBITDA
margins from 2HFY12E onwards.
EBITDA margins including MVML (100% manufacturing subsidiary at Chakan) was
14.2% in 1QFY12, higher than reported 13.3% in the standalone operations. We do not
value MVML separately as of now as it does contract manufacturing for both M&M and
MVNAL (51:49 joint venture between M&M and Navistar for manufacturing commercial
vehicles).
We upgrade the stock to BUY (from ADD) on attractive valuations after a sharp fall in stock
price on concerns that the government is likely to levy a additional excise duty on diesel
passenger vehicles. We reduce our target price to Rs780 (from Rs800) due to lower-thanexpected
other income in 1QFY12 and we have made marginal downward revisions in our
earnings estimates due to lower other income. We value the stock on sum of the parts
valuation methodology. We value the standalone operations at Rs607/share based on 13X
on our FY2013E EPS (ex dividends from subsidiaries) and value the subsidiaries at
Rs173/share (based on 20% discount to KIE target prices). Stock is attractively valued at
10.3X on our FY2013E EPS (excluding subsidiary value).
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