M&M - Another strong quarter - PhillipCapital

M&M's PAT at Rs 9.02bn (+22% Y-o-Y) was well above street expectations but only moderately ahead of our estimates (Rs8.9bn). The operational performance of the company continued to be strong while higher than expected other income surprised positively. The utility vehicle business remains well positioned, even as the management sounded more optimistic on the tractor volumes. Maintain a BUY with a revised target price of Rs930.

Results marginally ahead of estimates. M&M's reported PAT at Rs 9.02bn (up 22% YoY, 24% QoQ) was ~2% and ~10% ahead of our and street expectations respectively. While EBITDA was marginally below our expectations (but likely ahead of the street), PAT came ahead of our estimate on account of higher than expected other income (higher payout of dividends from subsidiaries). The PAT for MVML+M&M showed a similar trend, with profits at Rs9.8bn rising 28% Y-o-Y.

Tractor realizations improve, EBITDA margins decline limited: Revenues at Rs 98.1bn (up 33% YoY) grew strongly. Notably, tractor realizations that grew ~3% Q-o-Q reflecting (a) full impact of price hikes taken in Q1 - till H1, the management has hiked prices by ~5% to offset excise duty hikes and raw material cost pressures and (b) an improvement in product mix.

EBITDA margins at 11.4% (down 40bps QoQ) remained resilient despite an adverse change in product mix (lower proportion of high margin tractors in total volumes) as profitability in the UV segment improved. Higher other operating expenses (up 60bps QoQ) were offset with lower raw material cost (down 20 bps QoQ) - partially on account of the price hikes taken.

Management Outlook and concall highlights:

- Tractor guidance: Management retains its industry tractor growth guidance of 0-2% growth with an expected improvement in performance (growth of 5-9%) in the second half on account of (a) Better realization expected in Kharif crop that could lead to higher disposable income with farmers and (b) late monsoon revival is likely to improve production in Rabi crop.

- Tractor plant: The new tractor plant in Zaheerabad is likely to begin production by the end of the current fiscal.

- Quanto well received: The Quanto has received bookings of over 6000 units as against a production capacity of ~2500 units per month.

Outlook-Maintain BUY. M&M retains its leadership position in the UV space with new product launches and technology upgrades. A revival in the tractor segment will be a strong positive. With an unlevered balance sheet and strong growth prospects, the company seems well positioned despite the weak performance of certain subsidiaries (notably the Navistar venture).

Source : Equity Bulls

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