M&M - Tractors on the backseat; Maintain 'BUY' - TP Rs885 - PINC Research

Q3FY12 Result Review – Mahindra & Mahindra

Tractors on the backseat

Mahindra & Mahindra's (M&M) Q3FY12 operational results were broadly in-line with an EBITDA of Rs10.2bn (PINCe Rs10.4bn). Helped by a richer product mix, blended realisations improved 6.2% QoQ to Rs458k/unit and were marginally ahead of expectation. However, the purchase of traded goods from 100% manufacturing subsidiary MVML had a dilutive effect on margins to the tune of 14bps to 12.2% (PINCe 12.6%). While reported profit at Rs6.6bn was inline with estimate, adjusting for a forex loss reversal to the tune of Rs400mn (net of tax Rs270mn), profit was 3.5% lower than expectation.

New launches drive auto volumes, tractor growth normalizes

- Standalone margins contract 14bps; consolidating MVML margins improve

Outlook: With the excellent response to the XUV5OO, upcoming launch of the new Xylo and continued performance from other products in the automotive portfolio, we have increased FY13 volume estimate by 5%. At the same time we reduce tractor volume estimate for FY13 by 3%. We have raised realisations in-line with the change in product-mix and price hikes undertaken. However, with the contribution of MVML expanding and increasing raw material prices we have reduced margin estimates with the effect of contribution per vehicle remaining unchanged. Our earnings estimate for FY12 and FY13 is lowered by 0.7% and 1.3% respectively to Rs45.4 and Rs52.2 respectively. We introduce FY14 earnings estimate of Rs59.6.

VALUATIONS AND RECOMMENDATION

We reiterate our 'BUY' rating on the stock with a revised target price of Rs885 (earlier Rs882) based on the Sum of the Parts (SOTP) valuation.

Source : Equity Bulls

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