Buy Mahindra & Mahindra - Motilal Oswal

M&M 3QFY11: Operating performance in-line; Tractor margins stable QoQ; Cutting EPS to model new ESOP scheme; Buy

Net sales grew by 35.6% YoY (~14.4% QoQ) to Rs60.7b, driven by volume growth of 32% YoY (~13% QoQ) and realization improvement of 3% YoY.

EBITDA margins declined by 70bp QoQ (~10bp YoY) to 15.1% (v/s est 15.8%) impacted by 110bp QoQ (~220bp YoY) RM cost inflation.

Auto segment PBIT margins declined by 150bp QoQ (+110bp YoY) to 12.3%. Tractor business PBIT margins improved by 20bp QoQ & YoY to 18.5%.

Higher tax provisioning (adj tax rate of 28.7%) restricted adj PAT to Rs6.17b – a growth of 46% YoY (~15% QoQ decline).

Subsidiaries 3QFY11 performance was disappointing with disappointing performance from Systech, Hospitality and other business.

M&M would be acquiring 38% stake in EPC Ind, a micro-irrigation player, for investment of Rs433m. It would be required to make any open offer for 20% stake. We are cutting our consolidated EPS for FY12 and FY13 by ~6% each, to factor in a) equity dilution, b) 10% ESOP grant each in FY12 & FY13 with 5 year vesting period, c) higher tax rate and d) disappointing performance of subsidiaries. Maintain Buy with lowered target price to Rs819 (FY12 based SOTP).

Source : Equity Bulls

Keywords