M&M - Q3FY13 Result Update - SPA Securities

M&M reported better than expected set of numbers driven by robust SUV and pick up sales. Revenues during the quarter were aided by better product mix and improved realizations. EBITDA margin was down by 96 bps YoY & 16 bps QoQ to 11.2%. PAT margin stood at 7.8%, down by 14 bps YoY & 143 bps QoQ as the company had received a robust dividend income from its group companies in Q2FY13.

Robust growth in revenues - combined impact of volumes & realization

M&M reported net sales of INR 107743 mn, up by 28.5% YoY and 9.8% QoQ. Revenues for the quarter were aided by strong growth in volumes for its Utility Vehicles & Pick-ups (up by 23.7% YoY). The Company had increased the price three times (recently in January by ~1-3%) in automotive segment & by ~4.6% in the tractor segment YTDFY13 to compensate for the increase in price of raw materials.

Automotive Segment - leading the growth

Automotive segment volumes stood at 144466 units in Q3FY13, up by 18.7% YoY and 4.3% QoQ, resulting in its overall market share to increase from 12.4% to 13.7%. Realization in the segment stood at INR 509504/unit, up by 21% YoY due to higher share of premium SUVs.

Farm equipment segment - remains under pressure

Tractor volumes stood at 64800 units down by 1.6% due to poor winter monsoon. The key markets of Gujarat and Southern India have registered de-growth of ~20%. Realization in tractors segment stood at INR 525304/unit, up by 6.5% YoY.

Pressure on margin

EBITDA Margin in Q3FY13 contracted to 11.24%, down by 96 bps YoY & 16 bps QoQ led by higher COGS (75.9% of sales in Q3FY13 against 74.4% of sales in Q3FY12). EBITDA margin of M&M+MVML stood at 13.47%, down by 32 bps YoY & 36 bps QoQ. PAT margin stood at 7.76%, down by 14 bps YoY & 143 bps QoQ.

Decline in effective tax rate to aid bottomline

M&M's tax beneficiary plants at Haridwar and Rudrapur have been running at optimum level. The company's continuous expenditure on R&D front has enabled it to receive a significant tax benefit in FY13. YTDFY13 all the tax benefits have come in Q3FY13, therefore, the effective tax rate has reduced by ~4.7% to 21.1%. But for FY13, the company expects the effective tax rate to be ~24.3% as against ~25.3% in FY12.

New product launches and refreshments to aid growth

The company is planning to launch its electric vehicle named Mahindra Reva by the end of FY13. Over the next 12 months, the company is planning to introduce 4-5 refreshed versions. It also has plans to launch a brand new product from its tractors stable. It is also working on 3 new products which they expect to hit the market in FY15 and onwards.

Other Highlights

- M&M has launched 2 new SUVs in Q3FY13 named Rexton and Quanto. It has sold more than 800 units of Rexton and ~13000 units of Quanto in Q3FY13.

- M&M's exports have seen a volume de-growth of 37% QoQ & 14% YoY due to subdued demand from exporting destinations like Sri Lanka, Bangladesh, and Bhutan.

- Company expects Ssangyong to sell 149000 units in CY13 registering a growth of ~24%.

- Ssangyong has launched a new model named Korando Turismo few days back.

- Inventory for the automotive segment and tractors segment at the company's level is less than 2 weeks and less than 3 weeks respectively.

- M&M maintains its capex target of INR 50 bn over the next three years and an investment target of INR 25 bn in subsidiaries and JVs over the same period.

- The company will commence the production of tractors at its new facility at Zaheerabad in the current quarter.

Outlook & Valuation

M&M has been able to outperform the automobile sector in Q3FY13 largely on the back of new launches, better product mix and strong demand in its UV's & pick-ups segment. The company's overall market share grew by 130 bps to 13.7%. With strong demand for XUV5OO, SUV Quanto and pick-ups, we remain positive on the company. We expect M&M's standalone topline & bottomline to register a growth of 10.5% & 9.5% respectively in FY14. We retain our "HOLD" recommendation with a revised target price of 921 based on SOTP valuation over a period of 9 months.

Source : Equity Bulls

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