14 August 2013
1QFY14 Results Update | Sector:
Automobiles
Mahindra & Mahindra
BSE SENSEX
19,368
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
5,742
MM IN
615.9
1,026/738
-3/-2/8
CMP: INR873
TP: INR1,127
Buy
Muted outlook on autos to offset strength in tractors
Operating performance (incl,. MVML) below estimate:
Revenues grew 9.3%
YoY to INR97b (est INR101b) led by volume growth of 7%, but restricted by lower
realizations (-4% QoQ, flat YoY). EBITDA margins at 14.4% (+50bp YoY, flat QoQ)
were in-line with estimate, however EBITDA stood lower at INR14b (est INR14.6b)
due to lower than estimated revenues. Adj. PAT grew 16.9% YoY to INR9.1b (in-
line) as lower EBITDA was offset by higher other income, lower depreciation and
lower tax rate.
Earnings con-call highlights:
a) Upward revised tractor growth guidance to 10-
12% (6-8% earlier) on good monsoon, b) UV demand to remain weak in 2Q as well
due to inventory corrections, c) New platform launch in UVs to come only in FY16,
d) Mahindra Trucks & Bus business (erstwhile Mahindra Navistar Automotives), to
be merged with parent M&M giving tax benefit of INR2.4b (on accumulated losses
of INR10b), e) Capex (incl investments of INR250b) guidance maintained at
~INR100b over FY13-15, for next leg of capacity addition.
Cut FY14E/15E S/A EPS
by 9%/8.1% on muted auto outlook and consequent
margin pressure on operating deleverage and higher discounting. We cut our Auto
volume estimate for FY14/15 to -5%/10% (from +7%/12.5% earlier), but upgrade
our tractor volume growth assumption to 15%/10% for FY14E/15E (from
10.5%/8% earlier). Our estimates are yet to formally factor in for demerger of
Trucks business into standalone estimates.
Valuation & view:
Over the short term, there is no visible catalyst considering no
major launches in auto division over 18-24 months. However, normal monsoon
could lead to healthy recovery in tractor volumes (build-into our estimates). The
stock trades at 12.3x/9.8x FY14E/FY15E consolidated EPS of INR71/INR89.1.
Maintain
Buy
with a revised TP of INR1,127 (FY15 SOTP based after factoring for
demerger of trucks business, earlier INR1,275).
M.Cap. (INR b) / (USD b) 537.9/8.8
Financials & Valuation (INR b)
Y/E MAR
Sales
EBITDA
NP
2013 2014E 2015E
404.4 404.9 454.5
47.1
32.8
49.7
35.2
59.6
(1.8)
71.0
294
20.3
21.8
27.4
14.7
12.3
3.0
6.6
1.6
58.6
41.0
70.3
18.0
89.1
348
19.9
22.3
25.1
12.4
9.8
2.5
4.9
1.7
Adj. EPS (INR) 60.7
EPS Gr. (%)
25.8
Cons. EPS (INR) 60.9
BV/Share (INR) 248
RoE (%)
22.4
RoCE (%)
Payout (%)
Valuations
P/E (x)
23.2
26.6
14.4
Cons. P/E (x) 14.3
P/BV (x)
3.5
EV/EBITDA (x) 7.2
Div. Yield (%)
1.5
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 3982 5416
Chirag Jain
(Chirag.Jain@MotilalOswal.com); +91 22 3982 5418
Investors are advised to refer through disclosures made at the end of the Research Report.

Mahindra & Mahindra
Volume growth driven by tractors as auto volume declines
Volume growth of 7% during 1QFY14 was largely driven by tractors (+25% YoY,
50% QoQ) as auto sales declined by 1.8% YoY (-17.5% QoQ).
Within autos, passenger UVs declined by 3% YoY (-21% QoQ), while pick-ups
grew by 9% YoY (-8% QoQ). Three-wheelers have declined by 10.5% YoY (-20%
QoQ). Domestic tractor volumes grew by 26% YoY (+47% QoQ), while exports
improved by 5.5% YoY (nearly 2x QoQ).
M&M’s UV market share have declined by 180bp QoQ from 47.8% in 4QFY14 to
46% in 1QFY14.
While tractor market share have remained stable YoY at 41.4% but improved
significantly over 37.2% in 4QFY13 (40.2% in FY13).
Net revenues grew 9.3% YoY (-2.8% QoQ) to INR97b (est INR101b) led by
volume growth of 7% and realization growth of 2.1% YoY (-2.5% QoQ).
Auto realizations improved 2.5% YoY (-1% QoQ) to INR486,853/unit, while
tractor realizations improved by 1.2% YoY (-9% QoQ).
The company undertook a pricing action of 0.5% on both the auto and tractor
division during 1QFY14.
Volume break-up (units nos)
Passenger UVs
% of total
Pick-ups (incl. Small CVs)
% of total
Three Wheelers
% of total
Verito
% of total
Exports
% of total
Total Automotive
% of total
Tractors (Domestic)
% of total
Tractors (Exports)
% of total
Total Tractors
% of total
Total Volumes
1QFY14
57,008
29.2
43,023
22.1
12,367
6.3
3,216
1.6
4,771
2.4
120,385
61.7
71,390
36.6
3,187
1.6
74,577
38.3
194,962
1QFY13
58,616
32.2
39,410
21.6
13,815
7.6
2,888
1.6
7,842
4.3
122,571
67.3
56,558
31.1
3,020
1.7
59,578
32.7
182,149
YoY (%)
(3)
-290bp
9.2
40bp
-10.5
-120bp
11.4
10bp
-39.2
-190bp
-1.8
-550bp
26.2
560bp
5.5
0bp
25.2
550bp
7.0
4QFY13
71,762
36.7
46,830
24.0
15,445
7.9
4,061
2.1
7,766
4.0
145,864
74.6
48,593
24.9
1,071
0.5
49,664
25.4
195,528
QoQ (%)
(21)
-750bp
-8.1
-190bp
-19.9
-160bp
-20.8
-40bp
-38.6
-150bp
-17.5
-1,290bp
46.9
1,180bp
197.6
110bp
50.2
1,290bp
-0.3
Source: MOSL, Company
14 August 2013
2

Mahindra & Mahindra
Trend in business mix (INR m)
Revenues
Automotive
% of total
Farm Eqpmnt
% of total
Others
% of total
Total Revenues
1QFY14 1QFY13 YoY (%)
58,610 58,225
0.7
60.0
65.3
38,995 30,783
26.7
39.9
34.5
74
170
-56.2
0.1
0.2
97,679
89,178
9.5
4QFY13
71,637
71.3
28,540
28.4
262
0.3
100,439
QoQ (%)
-18.2
36.6
-71.6
-2.7
Trend in business mix (INR m)
Source: Company, MOSL
Source: Company, MOSL
Auto PBIT margins declines 120bp QoQ, while for tractor improves 70bp;
overall margin improves by 10bp QoQ
EBITDA margins improved 50bp YoY (flat QoQ) to 14.4% (est 14.5%) driven by
130bp (100bp QoQ) reduction in RM cost (reflecting favorable mix) partially
offset negative operating leverage as reflected in increase in staff cost (+10bp
YoY, +70bp QoQ) and other expenditure (+70bp YoY, +20bp QoQ).
Auto PBIT margins have declined by 120bp QoQ (-10bp YoY) to 11.2% , while
tractor PBIT margins improved by 70bp (110bp YoY) to 16.7%.
Decline in Auto margins could be attributed to operating deleverage (-17.5%
QoQ drop in volumes), poor mix (lower share of XUV5OO) and higher
discounting pressure amidst weak consumer sentiments and higher competitive
pressures. On the other hand, tractor margins improved on strong demand
(+50% QoQ rise in volumes), pricing action and stable commodity prices.
Despite in-line margins, EBITDA stood lower at INR14b (est INR14.6b) due to
lower than estimated revenues.
Adj. PAT grew 16.9% YoY to INR9.1b (in-line) as lower EBITDA was offset by
higher other income, lower depreciation and lower tax rate.
Other income grew 47% YoY (-4.4% QoQ) to INR972m (est INR710m), while
depreciation stood at INR2.1b (est 2.3b). Tax rate at 25.1% was lower than our
estimate of 26.2%.
M&M and M&M+MVML EBITDA margin trend
Trend in EBITDA and margins
Source: MOSL, Company
Source: MOSL, Company
14 August 2013
3

Mahindra & Mahindra
Trend in PBIT mix (INR m)
PBIT
Automotive
% of total
PBIT margin (%)
Farm Equipment
% of total
PBIT margin (%)
Others
% of total
PBIT margin (%)
Total PBIT
PBIT margin (%)
1QFY14
6,544
50.0
11.2
6,527
49.8
16.7
24
0.2
32.8
13,096
13.4
1QFY13
6,537
57.3
11.2
4,824
42.3
15.7
41
0.4
24.2
11,402
12.8
YoY (%)
0.1
-740bp
-10bp
35.3
750bp
110bp
-40.5
-20bp
870bp
14.9
60bp
4QFY13
8,895
65.7
12.4
4,559
33.7
16.0
85
0.6
32.6
13,540
QoQ (%)
-26.4
-1,570bp
-130bp
43.2
1,620bp
80bp
-71.4
-40bp
30bp
-3.3
13.5
-10bp
Source: MOSL, Company
Tractor: FY14 growth guidance increased to 10-12%
(from
6-8%) on
expectations of good monsoon and consequent positive rural sentiments
On expectations of good monsoon, MSP increase last year and relatively low
base, tractor industry is guided to grow at 10-12% (guidance upward revised
from 6-8% earlier). Except North Eastern states, all other states have received
normal to excess monsoon so far.
The domestic tractor industry witnessed strong growth of 26% in 1QFY14.
Barring Gujarat and Tamil Nadu, all other states have contributed to growth.
Gujarat and Tamil Nadu continue to remain weak due to two years of failed crop
season. However, with expectation of good monsoon this year, Gujarat is
showing signs of revival, while Tamil Nadu is expected to grow by 4QFY14.
M&M have grown in line with the industry. M&M market share have also
remained stable at 41.4% YoY (40.2% in FY13). Growth for M&M have been
uniform across states and product segments.
Management indicated that market shares of various players in the tractor
industry over the short to medium term are generally sticky.
M&M expects to launch a brand new tractor in FY14 (prior major launch was in
2001) which would be far better in terms of performance, fuel efficiency and
other vital parameters than existing offerings in the market.
Powerol (engine) business declined by 12% YoY to INR2.2b due to lower sales of
DG sets.
The Agri business (excl. tractors, implements and powerol business) continue to
perform strongly with 26% YoY growth in 1QFY14. For FY13, the division has
clocked INR3.4b in revenues (+88% YoY growth).
Auto: Near term outlook muted, new launches expected only from FY16
The UV segment have been impacted due to increase in excise duty to 30% (by
3%) on SUVs, lower differential between diesel and petrol prices and overall
slowdown in the economy and consequent weak consumer sentiments.
Moreover, higher competitive pressures have also impacted M&M’s UV sales,
particularly in urban focused products such as XUV5OO and Xlyo, as rural driven
products (Scorpio and Bolero) have registered to post marginal growth in
1QFY14.
4
14 August 2013

Mahindra & Mahindra
Retail demand in May and June dropped significantly for M&M’s UV products.
This led to inventory channel build-up, which the company has partially
corrected in July. However, the management has guided further inventory
correction in August and September to bring the channel inventory to normal
levels of 4-5 weeks by 2QFY14-end.
The management does not see any signs of turnaround over the near term,
however festive season needs to be watched out.
M&M is working on 3 brand new products (one along with Ssangyong R&D) but
expected to be launched only in FY16 onwards. In the meantime, M&M would
focus on launching variants/refreshes of the existing products to keep consumer
interest alive.
Ssangyong reports PAT after 23 quarters, expects 2H to be better
Ssangyong reported volume growth of 26% YoY in 2QCY13 to 38,195 units.
Revenue grew by 27% YoY.
Ssangyong recorded sales volumes of more than 12,000 units for three
consecutive months in 2QCY2 largely due to the success of the Korando Turismo
(MPV).
Ssangyong Motor was the only automotive company that recorded growth
among the domestic automakers in Korean despite the sluggish domestic
market in 1HCY13. During this period the market saw a 2.6% decline in demand
compared to the previous year.
Operating margins (after depreciation) stood at 0.4% v/s -2.6% in 2QCY12.
The company reported a PAT of INR410m in 2QCY13 v/s loss of INR1.2b YoY.
The management has guided better 2H driven by introduction of improved
models such as the New Korando C.
We model a volume growth of 19.9%/10.6% to 144,730/160,021 units, EBITDA
margins of 3.8%/4.9% and PAT of USD(25)m/USD13m for CY13/CY14
respectively.
Mahindra
Trucks & Bus to be demerged into M&M; to impact FY15 S/A EPS,
but marginal benefit at consol EPS due to tax benefit on c/f losses
The Trucks & Bus division (i.e. excluding spare parts business) of M&M’s 100%
subsidiary Mahindra Trucks and Buses (erstwhile Mahindra Navistar Automotive
Limited) would be demerged and merged into the parent company M&M.
Apart of tax benefits (on accumulated loss of INR10b) of INR2.4b, management
highlighted improvement in operational efficiency and reduction in transaction
costs within the group as the key reasons for such arrangement.
The merger would be effective April 2013, however the company awaits High
Court approval for such arrangement (expected by FY14 end/early FY15).
Considering slower economic growth, the demand environment for trucks
business continues to remain weak with no signs of revival over the near term.
The company is considering a capex of INR3-4b during the 2nd phase of capex
on ICV & LCV platform/products. The approval for 2nd phase of capex would be
sought after a year from the Board.
Given lack of clarity on the timing of the merger of Mahindra Trucks & Bus
(erstwhile Mahindra Navistar Automotive), we have currently not factored
demerger in our standalone estimates (although part of consolidated
estimates). However, our back of the envelope calculations suggest no impact
5
14 August 2013

Mahindra & Mahindra
on FY14E EPS (due to tax benefits of INR2.4b available on accumulated losses
off-setting impact of FY14 loss), while FY15E S/A EPS could get impacted by 6%.
We note that at the consolidated level, being a 100% subsidiary, the merger is
marginally positive due to tax benefits available to S/A business on losses of
truck & bus business. However, we conservatively factor in INR4.4/share (post
tax) EPS cut for FY15E in our SOTP workings to include the impact of the merger
of truck and bus business.
However, we conservatively factor in INR4.4/share (post tax) EPS cut for FY15E
in our SOTP workings to include the impact of the merger of truck and bus
business.
Mahindra Trucks & Buses - Proforma P&L
FY11
Revenue
Growth (%)
Variable Cost
Variable Cost (% of sales)
Fixed Cost
Fixed Cost (% of sales)
EBITDA
EBITDA margins (%)
PAT
NPM (%)
7,199
99.3
915
12.6
(862)
(11.9)
(1,863)
-25.7
7,252
FY12
12,298
69.6
12,874
104.7
1,284
10.4
(1,861)
(15.1)
(3,100)
-25.2
FY13
11,563
(6.0)
12,542
108.5
1,487
12.9
(2,465)
(21.3)
(3,651)
-31.6
FY14E
10,985
(5.0)
11,864
108.0
1,450
13.2
(2,329)
(21.2)
(3,519)
-32.0
FY15E
13,182
20.0
13,841
105.0
1,600
12.1
(2,259)
(17.1)
(3,449)
-26.2
Source: Company, MOSL
Other highlights
Due to lower volumes of products manufactured by MVML (such as XUV5OO,
Genio pick-up, Navistar trucks), the profit contribution of MVML has declined to
around INR420m v/s past few quarters run-rate of INR750m.
MVML has paid a maiden dividend to M&M of INR700m during 1QFY14.
Capital employed during the quarter has increased due to product launches over
the last couple of years and higher working capital requirements (on higher
channel inventory). With inventory correction planned over August &
September, the company plans to normalize the working capital.
Due to technical and fiscal considerations, Mahindra Navistar Engines Limited
has not been merged with M&M. The company manufacturers engines under
the license agreement with Navistar, USA.
Cut FY14E/15E EPS by 9%/8.1% on muted auto outlook
Considering the muted outlook for the UV segment in view of increase in excise
duty, lower fuel price differential and higher competitive pressures, we cut our
volume estimate for FY14/15 to -5%/10% (from +7%/12.5% earlier). However,
we upgrade our tractor volume growth assumption to 15%/10% (from
10.5%/8%) for FY14E/15E respectively on expectations of normal monsoon and
market share recovery.
On balance, we downgrade our S/A (M&M + MVML) FY14E/15E EPS by 9%/8.1%
led by cut in volume assumption and consequent reduction in margins on
operating de-leverage and higher discounting pressure for the auto segment.
Given lack of clarity on the timing of the merger of Mahindra Trucks & Bus
(erstwhile Mahindra Navistar Automotive), we have currently not factored in
6
14 August 2013

Mahindra & Mahindra
our estimates. However, our back of the envelope calculations suggest no
impact on FY14E EPS (due to tax benefits of INR2.4b available on accumulated
losses), while FY15E S/A EPS could get impacted by 6%. We note that at the
consolidated level, being a 100% subsidiary, the merger is earnings neutral,
infact marginally positive due to tax benefits available to S/A business on losses
of truck & bus business.
However, we conservatively factor in INR4.4/share (post tax) EPS cut for FY15E
in our SOTP workings to include the impact of the merger of truck and bus
business.
We cut our FY14E/15E consol. EPS by 8.3%/6.8% due to reduction in S/A
earnings coupled with downgrades in MMFSL and Mahindra Lifespace.
Revised forecast (INR b)
FY14E
Rev
Volumes ('000 units)
Net Sales
EBITDA (%, incl MVML)
Net Profit
EPS (INR)
EPS (INR, incl MVML)
Cons EPS (INR)
782
405
13.9
35
59
59.6
71.0
Old
831
444
14.3
36
61
65.5
77.4
Chg (%)
-5.9
-8.8
-40bp
-3.4
-3.4
-9.0
-8.3
Rev
859
455
14.7
41
68
70.3
89.1
FY15E
Old
920
503
14.6
42
70
76.5
95.6
Chg (%)
-6.7
-9.7
10bp
-1.9
-1.9
-8.1
-6.8
Source: MOSL, Company
Valuation & view
Over the short term, there is no visible catalyst considering no major launches in
auto division over 18-24 months. However, normal monsoon could lead to
healthy recovery in tractor volumes (build-into our estimates).
However, we continue to remain positive on M&M over medium to long term
given a) long term growth potential of 6-8% in the tractor industry and b)
market dominance in a fairly consolidated UVs and tractor industry coupled with
cheap valuations.
The stock trades at 12.3x/9.8x FY14E/FY15E consolidated EPS of INR71/INR89.1.
Maintain
Buy
with a revised TP of INR1,127 (FY15 SOTP based after factoring for
demerger of trucks business, earlier INR1,275).
FY14E
55.2
13
717
104
90
10
19
65
9
1,014
FY15E
61.0
13
794
104
106
10
19
65
28
1,127
Basis
M&M: Sum-of-the-parts (INR/share)
Core EPS (excl. subsidiary dividend)
PE attributable (x)
Value of core business
Value of subsidiaries @ 20% Hold Co discount
1. Tech Mahindra
2. M&M Financial Services
3. Mahindra Lifespaces
4. Mahindra Holidays
5. Ssangyong
6. Others - Value per share of M&M
Target price
20% discount to fair value
20% discount to fair value
20% discount to fair value of
INR508/sh
20% discount to CMP
20% discount to CMP
Source: MOSL, Company
14 August 2013
7

Mahindra & Mahindra
Mahindra & Mahindra: an investment profile
Company background
M&M is the market leader in UV and tractors, with
market share of over 48% and 41% respectively. It also
has presence into CVs, 3-wheelers and 2-wheelers
segments. Also, Ssangyong, it subsidiary in South Korea
is focused on SUV segment in global markets. Apart
from core auto business, it has subsidiaries/ associates
in various businesses like IT, NBFC, Auto ancillaries,
hospitality, infrastructure etc.
Recent Developments
The company proposes to demerge the truck & bus
business (i.e. excluding spare parts business) from
Mahindra Truck & Bus (erstwhile Mahindra Navistar
Automotive Limited), a 100% subsidiary and merge
it with the M&M Ltd.
Valuation and view
Key investment arguments
Market dominance in key segment of UVs and
tractors augurs well for M&M.
M&M would be one of the biggest beneficiaries of
normal monsoon, given its rural centric product
portfolio.
M&M’s investments in its subsidiary and associate
companies add substantially to the company’s
valuations. Value unlocking in these companies
would act as catalyst for M&M’s stock.
The stock trades at 12.3x/9.8x FY14E/FY15E
consolidated EPS of INR71/INR89.1.
Maintain Buy with a revised TP of INR1,127 (FY15
SOTP based after factoring for demerger of trucks
business, earlier INR1,275).
Sector View
Key investments risks
High dependence on monsoon, particularly for the
tractor division.
Increasing diesel prices and additional duty on SUVs
would adversely impact M&M.
Successful integration and turnaround of Ssangyong
would be key challenge.
M&M
Maruti Tata Motors
16.3
12.4
7.7
31.1
12.4
14.2
7.1
5.4
9.7
8.0
2.1
22.2
22.2
21.6
4.0
3.4
We remain positive over the medium to long term
on the passenger vehicle segment given low
penetration and growth in income and aspiration
levels
We also believe that within passenger vehicles, UVs
will increase their market share consistently over
the next few years.
Also, tractor business is expected to grow at 6-8%
CAGR over next 5 years.
Comparative valuations
P/E (x)
EPS Gr (%)
RoE (%)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
12.3
9.8
38.7
25.4
20.3
19.9
6.6
4.9
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY14
FY15
59.7
68.4
Consensus
Forecast
60.1
67.7
Variation
(%)
-0.6
1.0
Target price and recommendation
Current
Price (INR)
873
Target
Price (INR)
1,127
Upside
(%)
29.1
Reco.
Buy
EV/EBITDA (x) FY14E
FY15E
Shareholding pattern (%)
Jun-13
Promoter
Domestic Inst
Foreign
Others
25.4
15.3
44.8
14.5
Mar-13
25.3
15.5
44.1
15.2
Jun-12
25.5
19.9
37.1
17.5
Stock performance (1-year)
14 August 2013
8

Mahindra & Mahindra
Financials and valuation
14 August 2013
9

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