Mahindra & Mahindra Results Report - SUVs to accelerate, tractors to moderate - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

M&M's 4QFY21 APAT came in at INR 10bn (-43% QoQ). The management reiterated its focus on strengthening its core portfolio of SUVs. While the management has raised its plans for Capex + Investment to INR 170bn for the next three years, it is confident of improving its FCF to fund the same. We reiterate our ADD rating on the stock and tweak our estimates to set a revised SOTP-based target price of INR 890. While SUVs should grow in FY22E on new model launches, high growth FES segment will moderate to low single-digit growth in FY22E.

4QFY21 financials: M&M+MVML: Revenue was above estimate at INR 133.5bn (-5% QoQ) as realisations expanded 5%. However, EBITDA margin at 14.7% contracted 230bps QoQ due to higher other expense and RM cost. There was an exceptional expense of INR 8.4bn related to impairment provisions for long-term assets. Adj. PAT came in at INR 10bn, declining by 43% QoQ. Tractor segment: Revenue was lower 6% QoQ due to an 8% decline in volumes. The segment reported an EBIT margin of 22% (-140bps YoY) on higher input costs. Automotive: Volumes were down 11% QoQ due to supply constraints. EBIT margin came in at 5% vs 7.4% QoQ.

Call takeaways: (1) Aggressive capex plans: Over the next three years, M&M has planned a Capex of INR 120bn - INR 30bn for the FES and INR 90bn towards Auto - of which INR 30bn is for EVs. It has also guided for investments amounting to INR 50bn in auto, farm and group companies. While the total spends have been guided higher, the management is confident of improving cash flows due to its revamped product portfolio (2) Focus on strengthening its core portfolio: By CY26, the company plans to launch nine new products in the auto segment (incl. two EV products), which will be centered around their existing high selling models such as XUV300, Scorpio, Bolero. The XUV700 launch is on track for CY21, despite the supply constraints (3) Semiconductor shortage: M&M continues to face ECU related shortages due to which channel inventories are at low levels. This issue is expected to resolve from 2QFY22. (4) Tractor & FES: Management has guided for a low single-digit growth for the tractors industry in FY22; autos to grow in double digits, driven by new model launches/base effect.

Shares of MAHINDRA & MAHINDRA LTD. was last trading in BSE at Rs.807.9 as compared to the previous close of Rs. 846.2. The total number of shares traded during the day was 871183 in over 27999 trades.

The stock hit an intraday high of Rs. 829.5 and intraday low of 790. The net turnover during the day was Rs. 699480075.

Source : Equity Bulls

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