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Sector: Automobiles Sensex: CMP (Rs): Target price (Rs): Upside (%): 52 Week h/l (Rs): Market cap (Rscr) : 6m Avg vol (‘000Nos): No of o/s shares (mn): FV (Rs): Bloomberg code: Reuters code: BSE code: NSE code:
Prices as on 08 Aug, 2012
17,601 723 800 10.7 875 / 622 44,375 1,749 614 5 MM IB MAHM.BO 500520 M&M
Revenues increase 39% yoy driven by strong volume growth in automotive segment; Revenues ahead of our expectations on higher than estimated realizations OPM at 11.8% was better than our estimates of 11%, OPM declined 147bps yoy but rose 152bps sequentially Including MVML, OPM was lower by only 39bps yoy but increased 181bps qoq to 13.9% Higher interest and depreciation resulted in a restricted PAT growth compared to rise in operating profit While auto segment volume growth will continue to remain strong, poor monsoons entail a grim outlook for the tractors segment We value M&M at Rs800/share (9-month target), which includes Rs592 for its automotive business (10x P/E for FY14E) and Rs208 for its subsidiaries
Shareholding pattern June '12 Promoters Institutions Non promoter corp hold Public & others Performance rel. to sensex (%) M&M Maruti Tata Motors Ashok Ley 1m (0.1) (7.0) 1.5 (7.8) 3m 1.0 (20.2) (24.7) (24.6) 1yr 5.1 (9.1) 42.4 (6.3) (%) 25.5 47.6 8.9 18.1
(Rs m) Net sales Material costs Personnel costs Other overheads Operating profit OPM (%) Depreciation Interest Other income Extra ordinary items PBT Tax Effective tax rate (%) Adjusted PAT Adj. PAT margin (%) Ann. EPS (Rs) Q1 FY13 93,674 (70,354) (4,516) (7,710) 11,094 11.8 (1,548) (460) 599 9,684 (2,428) 25.1 7,256 7.7 49.3 Q1 FY12 67,271 (48,336) (4,017) (5,964) 8,954 13.3 (1,099) (262) 550 8,143 (2,095) 25.7 6,049 9.0 41.2 % yoy 39.2 45.5 12.4 29.3 23.9 (147) bps 40.9 75.4 8.7 18.9 15.9 20.0 (125) bps 19.6 Q4 FY12 93,872 (70,894) (4,294) (8,990) 9,694 10.3 (1,997) (709) 956 1,083 9,026 (281) 3.1 8,745 9.3 59.5 % qoq (0.2) (0.8) 5.2 (14.2) 14.4 152 bps (22.5) (35.1) (37.4) 7.3 764.0 (17.0) (157) bps (17.2)
Share price trend
140 120 100 80
Source: Company, India Infoline Research
60 Aug-11 Dec-11 Apr-12
Revenue (Rs mn) Automotive Farm equipments Others Total EBIT (Rs mn) Automotive Farm equipments Others Total EBIT Margin (%) Automotive Farm equipments Others Total
Q1 FY13 62,787 30,783 170 93,739 Q1 FY13 5,528 4,824 40 10,392 Q1 FY13 8.8 15.7 23.5 11.1
Q1 FY12 38,559 28,571 205 67,335 Q1 FY12 4,139 4,574 21 8,734 Q1 FY12 10.7 16.0 10.1 13.0
% yoy 62.8 7.7 (17.3) 39.2 % yoy 33.5 5.5 91.3 19.0 bps yoy (193) (34) 1,333 (189)
Q4 FY12 66,137 27,611 196 93,944 Q4 FY12 5,759 4,342 31 10,132 Q4 FY12 8.7 15.7 16.1 10.8
% qoq (5.1) 11.5 (13.3) (0.2) % qoq (4.0) 11.1 26.8 2.6 Bps qoq 10 (5) 742 30
Source: Company, India Infoline Research August 09, 2012
Operating profit was higher by 23. M&M reported an OPM of 11.5 25.6) (3.785 8.350 13.7 bps yoy 325 (115) (63) 147 Q4 FY12 75.4 31.8% yoy on the back of price hikes implemented.101) 1.754) 11. OPM was lower by only 39bpsbps yoy and improved 181bps qoq to 13.0 181 bps (20.2 Q1 FY12 71.183 9.0 10.7 (16.2 86.2 85.493) (4.8%. 325bps yoy increase in raw material costs as a percentage of sales was the key reason for the fall in margins.810) (8.363 (2.8 8.264) (1.2 5.1 4.1 34.188 (65. PAT margin (%) Q1 FY13 88. volumes for automotive segment were lower by 14.5 27.5) (35.9 (39) bps Q4 FY12 91. EBIT margins for automotive and tractors segment fell 193bps and 34bps on yoy basis. India Infoline Research Revenues increase on back of improvement in automotive volumes Mahindra & Mahindra (M&M) reported a net sales growth of 39.785 (63.7 9. Including MVML.550) (9.1 Q1 FY12 70.498 (2. passenger UV sales were higher by 32% yoy on account of continued success of Scorpio and Bolero and also on account of an outstanding launch of the XUV 500.1 20.029 12.015 1.658 14. especially for the automotive segment.180) 26.6) 5. while OPM was lower by 147bps yoy but improved 152bps sequentially.8 Q1 FY12 67. higher than our expectations.2 % yoy 31. In the automotive segment. the company had merged with itself the automotive business of Mahindra Automobile Distributor Private Ltd (MADPL) in Q4 FY12 which manufactures and sells Verito (previously Logan).9 (1. Cost analysis As a % of net sales Material costs Personnel Costs Other overheads Total costs Q1 FY13 75.4% qoq.Mahindra & Mahindra – (Q1 FY13) M&M Standalone + MVML quarterly performance (Rs m) Net sales Material costs Personnel costs Other overheads Operating profit OPM (%) Depreciation Interest Other income Extra ordinary items PBT Tax Effective tax rate (%) Adjusted PAT Adj.9 86.762 (650) 6.7 87.183) 9.7 bps qoq (42) 25 (135) (152) Source: Company.3 6.4 25.6 89.6 9. On a qoq basis.713) 25.491) (4.0 % qoq (2.2% yoy.206) (6.113 10.4 9. tractor segment volumes were lower by 1% yoy leading to an overall volume growth of 17.5 5. Realizations of tractors increased by 8.5 24.855) (4.9% yoy. higher proportion of UVs and price hikes implemented over the last one year.8% (Q4 FY12 had full FY12 volumes of Verito) while farm equipment segment witnessed a rise of 14% in sales.313) (532) 550 8.8) 7.0 8.2% yoy driven by a strong automotive segment volume growth of 28.7 bps yoy 120 (81) 0 39 Q4 FY12 72.3 (1.1 6. India Infoline Research 2 . 4W pick up volumes jumped by 26.2 9. The company attributes this.132) 12.537 (47.8 7. Realizations for the automotive segment were higher by 29% yoy owing to substantially higher realizations of XUV 500.7% yoy (in Q1 FY12 Verito volumes were not a part of M&M Auto segment).2 88.800) (714) 662 10.9 bps qoq (71) 43 (154) (181) Source: Company.6) (123) bps Source: Company. Higher raw material costs lead to yoy decline in OPM During Q1 FY13. However.9 6.9%.7 14.9% yoy and 14.5 33.5 4.6 (14. India Infoline Research Cost analysis (M&M + MVML) As a % of net sales Material costs Personnel Costs Other overheads Total costs Result Update Q1 FY13 71.9 (39) bps 37.6) 12.1 (2.083 9. Benefits of operating leverage were seen as both staff costs and overheads declined as a percentage of net sales. to the fact that the standalone company earns only marketing margins on incremental production from MVML.2) (34. Additionally.5 317.
555 30.000 units per month. M&M plans to launch three vehicles which include 1) the Mini – SUV.0 FY13E 382.7 25.621 27.3 16.000 units and currently has bookings for 20.0 10.2 2. Sri Lanka. Nepal. Brazil (additional thrust on from last quarter).535 35. For the automotive segment.6 25. Automotive exports momentum is likely to sustain in terms of absolute volumes.543 14.800 to 2. Australia (XUV launched last month).9 35.685 16.7 4. Maintain BUY We value M&M at Rs800/share (9-month target). The company has maintained its CY12 volume guidance of 123. Inventory for both automotive and tractor segment are at comfortable levels.1 22.706 28.000 units over the next 3-6 months. which includes Rs592 for its automotive business (10x P/E for FY14E) and Rs208 for its subsidiaries.279 20. the company lost some market share in Q1 FY13 as the company refrained from offering discounts to attract volumes. Tractor volumes will continue to reel under pressure on the back of poor monsoons.0 Source: Company. India Infoline Research Result Update 3 .816 11.7 FY14E 427. For XUV 500. The company plans to raise the production capacity to 5.5 30.077 11.789 8.993 11.000 units. while plant inventory is at 15 days. the company so far sold ~32.1 3.8 37.1 12. Additional upsides would arise from export of CKD units to India.8 27.9 28. Until Diwali.707 11.0 43. We believe. Chile. For FY13. Bangladesh.9 0.000 units a growth of ~9% yoy. The company currently has no plans to raise XUV 500 capacity beyond 5. the company has guided for a flat to 3% growth in tractor volumes.6 8.5 11.446 26.603 26.0 15. The initial response to the new Verito has been good and the company aims to clock a monthly runrate of 1.8 59.3 12.000 units.1 34.3 24.1 28. dealer inventory is at 26-28 days.5mn as compared to a loss of similar magnitude in H1 CY11. M&M’s automotive will continue to see robust growth as its UVs continue to be the market leader in their segments and its LCVs are well placed in the strong growth segments.000 units in the near term.1 47. 2) a new electric car and 3) a model from the Ssangyong platform.7 50.685 35.8 FY12 318.8 0.4 3. The company is confident of meeting its guidance in spite of flat volumes in H1 as Rexton-W which was launched a month back and Rodius whose emission norms issue has been sorted out will provide traction.0 0.3 14.1 23. In the farm equipment segment.1 51.Mahindra & Mahindra – (Q1 FY13) Key takeaways from the conference call In the tractor segment. For Ssangyong H1 CY12 volumes and revenues have remained flat. Major export markets for auto segment include South Africa. The current production rate is 4.4 0. Financial summary Y/e 31 Mar (Rs m) Revenues yoy growth (%) Operating profit OPM (%) Pre-exceptional PAT Reported PAT yoy growth (%) EPS (Rs) P/E (x) Price/Book (x) EV/EBITDA (x) Debt/Equity (x) RoE (%) RoCE (%) FY11 234. in terms of EBIDTA the company has reported a profit of US$12. the plant inventory is at 22 days and the dealer inventory is at 26-28 days.5 43. Incremental investments would be minimal.1 25. In terms of exports. tractor exports are likely to slowdown given the tough economic conditions in Bangladesh.2 28. which has been a major market for M&M. However.555 6.
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