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UBS Investment Research
Mahindra & Mahindra
Q1FY12: Strong performance
„ Event: Q1FY12 results ahead of UBS-e
M&M (stand-alone) revenues came at Rs.66.7 (+30% YoY) vs UBS-e of Rs 65.1
led by sharp QoQ growth of 3% in ASP. EBITDA at Rs 8.97bn was ahead of UBSe of Rs 8.5bn as EBITDA margin stood at 13.4% (vs UBS-e of 13.1%) on better
cost control and higher other operating income. Mgmt. est. they lost ~0.6% - 0.8%
EBITDA margin due to change in VAT refund policy by Maharashtra govt. PAT
was 6% ahead of UBS-e at Rs.6.1bn (+8% YoY).
„ Impact: Maintain estimates; volume outlook remains robust
Mgmt. reiterated its guidance of 11%-13% YoY growth in Tractor segment.
Expects to outperform the industry in the auto segment. New launches like the
Maxximo minivan have helped the co. gain significant market share. The co.
continues to face capacity constraints in the Pickups segment. We believe with
VAT refund impact already in the nos. one of the overhang on the stock has lifted.
„ Action: Reiterate Buy; Potential diesel tax looks priced in
We believe potential imposition of diesel tax on SUVs remains a key overhang in
the near term. However, we believe the same is priced in. We believe our est. of
10%YoY growth in SUVs in FY12 is still achievable. We see an upside risk to our
earnings if the same is not imposed. Margins should likely improve in the coming
quarter as full impact of the price increases is reflected.
„ Valuation: Remains attractive, maintain Buy, PT of Rs.840
Our valuations are based on a sum of the parts basis. We believe the stock is
attractive at current valuations trading at 11.7x FY12 PE.
Key conference call takeaways
Automotive business: Co. gained 4.5% market share in UVs in Q1FY12.
Automotive industry grew by 9-10% vs. M&M growth of 24% due to several
new product launches including Maxximo (last year), Maxximo minivan. Co.
has captured close to 30% market share with the Maxximo mini van. Maxximo
mini truck has a market share of 22%-23% in its segment.
Sales in the pickup segment were negatively impacted by capacity constraints
which according to mgt., will be resolved by the end of Q2FY12.
Mgmt. expects industry demand to remain sluggish, however, expect M&M to
outperform industry growth in FY12. .
Farm equipment business: Tractor industry grew by 13.5% in Q1FY12 vs.
M&M growth at 18% leading to market share gain of ~2.3%.
Yuvraaj capacity: current capacity is ~1000tractors/month. Co. expects to
increase to 1500tractors/month by the end of this year. According to mgmt. they
are running close to full capacity.
FY12 outlook: Tractor industry will grow in the range of 11-13% due to high
base effect, according to co. expectation. The co. expects growth to be slower in
the remaining part of the year.
Raw material costs: RM as percentage of sales increased 70bps QoQ in
Q1FY12 to 72.4%. Co. took a price increase to extent of 1-1.5% in the quarter
to offset the RM increase in the Auto segment. Mgmt. took price increase in
tractor segment in Jun and for the Swaraj division from Jul 1. Mgmt. does not
expect the remaining FY12 to be difficult in terms of commodity prices.
Staff costs: Staff costs increased to Rs.4.0bn in Q1FY12 vs. Rs.4.3bn in
Q4FY11. Of the total increase, Rs.260m (recurring) is due to amortisation of
ESOP that was last year.
Ssangyong update: Mgmt. continues to target vol. ~120k units in FY12
(+40% YoY). The expenses at Ssangyong were lower under court receivership.
Post taking over the co. there has been a pre-agreed wage hike as well as price
increases given to component suppliers. However, co. doesn’t expect to infuse
any fresh capital into Ssangyong. Investments of about US$200mn are being
funded by freeing up working capital.
Navistar JV update: According to co., the product has received positive
feedback, however the ramp up in sales is slower than expected. Co. is currently
doing 200vehicles/month.
VAT update: Maharashtra govt. in Mar’11 has withdrawn the VAT set off
allowed on production of units that were sold outside Maharashtra; the
withdrawal had negative impact of 0.6%-0.8% on combined operating margins
of M&M and MVNL in Q1FY12. The matter is still under negotiation with the
state government.
Q Mahindra & Mahindra
Mahindra & Mahindra (M&M) manufactures utility vehicles (UVs), tractors,
commercial vehicles (CVs), three-wheelers and gensets. It is India's market
leader in UVs and tractors. The autos and farm equipment divisions contributed
56% to M&M's consolidated revenue in FY09. M&M, through its joint ventures
with Navistar, manufactures and markets medium and heavy CVs in India.
M&M has subsidiaries in IT services (Tech Mahindra), financial services
(M&M Financial Services), infrastructure development (Mahindra Lifespace
Developers), hospitality (Mahindra Holidays & Resorts) and auto components.
Q Statement of Risk
Principal risk to M&M’s earnings estimates arise from fluctuation in vehicle
sales volumes and fluctuation in raw material cost. Other businesses in the
M&M group, viz. IT, Infrastructure, financing etc are exposed to interest rate
risk, currency risk etc.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Mahindra & Mahindra
Q1FY12: Strong performance
„ Event: Q1FY12 results ahead of UBS-e
M&M (stand-alone) revenues came at Rs.66.7 (+30% YoY) vs UBS-e of Rs 65.1
led by sharp QoQ growth of 3% in ASP. EBITDA at Rs 8.97bn was ahead of UBSe of Rs 8.5bn as EBITDA margin stood at 13.4% (vs UBS-e of 13.1%) on better
cost control and higher other operating income. Mgmt. est. they lost ~0.6% - 0.8%
EBITDA margin due to change in VAT refund policy by Maharashtra govt. PAT
was 6% ahead of UBS-e at Rs.6.1bn (+8% YoY).
„ Impact: Maintain estimates; volume outlook remains robust
Mgmt. reiterated its guidance of 11%-13% YoY growth in Tractor segment.
Expects to outperform the industry in the auto segment. New launches like the
Maxximo minivan have helped the co. gain significant market share. The co.
continues to face capacity constraints in the Pickups segment. We believe with
VAT refund impact already in the nos. one of the overhang on the stock has lifted.
„ Action: Reiterate Buy; Potential diesel tax looks priced in
We believe potential imposition of diesel tax on SUVs remains a key overhang in
the near term. However, we believe the same is priced in. We believe our est. of
10%YoY growth in SUVs in FY12 is still achievable. We see an upside risk to our
earnings if the same is not imposed. Margins should likely improve in the coming
quarter as full impact of the price increases is reflected.
„ Valuation: Remains attractive, maintain Buy, PT of Rs.840
Our valuations are based on a sum of the parts basis. We believe the stock is
attractive at current valuations trading at 11.7x FY12 PE.
Key conference call takeaways
Automotive business: Co. gained 4.5% market share in UVs in Q1FY12.
Automotive industry grew by 9-10% vs. M&M growth of 24% due to several
new product launches including Maxximo (last year), Maxximo minivan. Co.
has captured close to 30% market share with the Maxximo mini van. Maxximo
mini truck has a market share of 22%-23% in its segment.
Sales in the pickup segment were negatively impacted by capacity constraints
which according to mgt., will be resolved by the end of Q2FY12.
Mgmt. expects industry demand to remain sluggish, however, expect M&M to
outperform industry growth in FY12. .
Farm equipment business: Tractor industry grew by 13.5% in Q1FY12 vs.
M&M growth at 18% leading to market share gain of ~2.3%.
Yuvraaj capacity: current capacity is ~1000tractors/month. Co. expects to
increase to 1500tractors/month by the end of this year. According to mgmt. they
are running close to full capacity.
FY12 outlook: Tractor industry will grow in the range of 11-13% due to high
base effect, according to co. expectation. The co. expects growth to be slower in
the remaining part of the year.
Raw material costs: RM as percentage of sales increased 70bps QoQ in
Q1FY12 to 72.4%. Co. took a price increase to extent of 1-1.5% in the quarter
to offset the RM increase in the Auto segment. Mgmt. took price increase in
tractor segment in Jun and for the Swaraj division from Jul 1. Mgmt. does not
expect the remaining FY12 to be difficult in terms of commodity prices.
Staff costs: Staff costs increased to Rs.4.0bn in Q1FY12 vs. Rs.4.3bn in
Q4FY11. Of the total increase, Rs.260m (recurring) is due to amortisation of
ESOP that was last year.
Ssangyong update: Mgmt. continues to target vol. ~120k units in FY12
(+40% YoY). The expenses at Ssangyong were lower under court receivership.
Post taking over the co. there has been a pre-agreed wage hike as well as price
increases given to component suppliers. However, co. doesn’t expect to infuse
any fresh capital into Ssangyong. Investments of about US$200mn are being
funded by freeing up working capital.
Navistar JV update: According to co., the product has received positive
feedback, however the ramp up in sales is slower than expected. Co. is currently
doing 200vehicles/month.
VAT update: Maharashtra govt. in Mar’11 has withdrawn the VAT set off
allowed on production of units that were sold outside Maharashtra; the
withdrawal had negative impact of 0.6%-0.8% on combined operating margins
of M&M and MVNL in Q1FY12. The matter is still under negotiation with the
state government.
Q Mahindra & Mahindra
Mahindra & Mahindra (M&M) manufactures utility vehicles (UVs), tractors,
commercial vehicles (CVs), three-wheelers and gensets. It is India's market
leader in UVs and tractors. The autos and farm equipment divisions contributed
56% to M&M's consolidated revenue in FY09. M&M, through its joint ventures
with Navistar, manufactures and markets medium and heavy CVs in India.
M&M has subsidiaries in IT services (Tech Mahindra), financial services
(M&M Financial Services), infrastructure development (Mahindra Lifespace
Developers), hospitality (Mahindra Holidays & Resorts) and auto components.
Q Statement of Risk
Principal risk to M&M’s earnings estimates arise from fluctuation in vehicle
sales volumes and fluctuation in raw material cost. Other businesses in the
M&M group, viz. IT, Infrastructure, financing etc are exposed to interest rate
risk, currency risk etc.
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