Mahindra and Mahindra - 4QFY2013 Result Update - Angel Broking

For 4QFY2013, Mahindra and Mahindra (MM) posted a strong set of results, which were broadly in-line with our estimates on the top-line and bottom-line front, driven by a better-than-expected EBITDA margin performance. The EBITDA margin expanded 178bp yoy (87bp qoq) led by a strong growth of 5.3% yoy (3.5% qoq) in net average realization coupled with softening of commodity prices. We broadly retain our revenue and earnings estimates for FY2014/15. We expect the momentum in the utility vehicle segment to taper off slightly in FY2014 due to rising competition; however, revival in tractor volumes on expectations of normal monsoon is likely to result in an overall volume growth of ~9% in FY2014. We retain our positive bias on MM and maintain our Accumulate rating on the stock.

Strong operating performance in 4QFY2013: MM registered an in-line net sales growth of 11.7% yoy (down 2.7% qoq) to Rs. 10,487cr driven by a 6.5% yoy (down 6% qoq) and 5.3% yoy (3.3% qoq) growth in volumes and net average realization respectively. While volume growth was driven by the Bolero and XUV500, net average realization improved led by price hikes and a better product-mix. On the operating front, the EBITDA margin expanded by 178bp yoy (87bp qoq) to 12.1%, against our expectations of 11%, on account of superior product-mix, pricing action, coupled with softening of commodity cost pressures. As a result, the operating profit grew strongly by 31% yoy (4.8% qoq) to Rs. 1,270cr. The EBIT margins in the automotive (AS) and farm equipment segments (FES) improved 109bp (131bp qoq) and 24bp yoy (48bp qoq) respectively during the quarter. The adjusted net profit however, posted a modest growth of 4.2% yoy (down 4.5% qoq) as a higher tax-rate (at 26.1% as against 21.1% in 3QFY2013) restricted the growth in the bottom-line.

Outlook and valuation: The Management expects the demand environment to remain challenging in the AS in FY2014 due to higher taxes and increasing diesel prices. Nevertheless, the company is witnessing initial signs of revival in the FES led by expectations of a good monsoon and a better rabi crop realization. We retain our positive bias on MM and maintain our Accumulate rating on the stock with a sum of the parts (SOTP) target price of Rs. 1,090.

Source : Equity Bulls

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