9 November 2019
Q2FY20 Results Update | Sector: Automobiles
Mahindra & Mahindra
BSE SENSEX
40,324
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
11,908
MM IN
1,209
721.1 / 10.1
814 / 503
-5/-15/-41
2468
81.1
CMP: INR580
TP: INR680 (+17%)
Buy
Above est.; Superior operating performance despite weak volumes
Total volumes declined ~16% YoY. Realizations grew 2.1% YoY to ~INR571.3k
(v/s est. ~INR580.2k). Net revenues (incl. MVML) declined 14.5% to ~INR109.4b
(v/s est. ~INR111b). EBITDA margins declined 40bp YoY (flat QoQ) to 14.1% (v/s
est. 12.2%). Margin beat was driven by better mix, price increases and lower
RM costs. PBIT margins for Autos declined ~210bp YoY (-70bp QoQ) to 5.8%
and for Tractors, it declined 90bp YoY (flat QoQ) to 19.3%. Adj. PAT declined
19% YoY to ~INR13.5b (v/s est. ~INR14.7b). It is yet to adopt new tax regime.
1HFY20 revenue/EBITDA/PAT has grown -9%/-16%/19%. CFO in 1HFY20 has
declined ~90% due to weak operating performance and increase in working
capital. With capex (incl. investments in subsidiaries) stable at ~INR27.9b, FCFF
was negative at ~INR26.5b (v/s -INR11.5b in 1HFY19).
Takeaways from the earnings call: (a)
MM’s festive season retail sales for
Tractor declined 4%, while it grew 23% for the Auto segment; (b) 2HFY20 PV
industry outlook - UVs to grow 12-13%, cars to decline 8-10% and overall PVs
to decline 5-6%; (c) Tractors should decline 7-8% (v/s earlier guidance of up to
5% decline) in FY20; (d) Inventory – Autos 5-6k units short of target and
Tractors are at targeted level but would further reduce by 1-1.5k in 3QFY20;
and (e) It has reduced discounts in Auto segment post the festive season.
Valuation and view:
We are upgrading our EPS estimates by 8-9% to factor in
the strong margins. M&M’s UV business is facing cyclical headwinds, along with
rise in competitive intensity. Further, we expect it to face headwinds in the
diesel portfolio during the BS6 transition. The stock trades at implied core P/E
of ~11.3x/10.4x. Maintain
Buy
with TP of ~INR680 (Sep’21 SOTP-based).
(INR Million)
FY20E FY20
2QE
8,06,800 1,91,390
-14.1 -16.3
5,75,250 5,80,225
2.2
3.7
4,64,112
1,11,049
-12.2
-13.2
66.8 68.4
7.6
7.3
12.0 11.7
64,495 13,575
13.9 12.2
16,833
8,265
375
1,416
23,845
5,875
69,738
15,590
6.0
22.4
54,150
14,655
40,733
14,655
-24.8
-12.4
Financials & Valuations (INR b)
Y/E Mar
2019 2020E 2021E
Sales
536.1 469.9 524.0
EBITDA
66.4 58.5
65.3
NP (incl. MVML) 54.2 40.7
44.3
Adj. EPS (INR) *
45.5 34.2
37.1
EPS Gr. (%)
25.3 -24.8
8.6
BV/Sh. (INR)
287
320
344
RoE (%)
14.9 11.3
10.2
RoCE (%)
13.9 10.6
9.7
P/E (x)
12.8 17.0
15.6
Cons. P/E (x)
13.6 16.6
14.7
P/BV (x)
2.0
1.8
1.7
* incl. MVML
Estimate change
TP change
Rating change
Quarterly Performance (incl MVML)
Y/E March
FY19
1Q
2Q
3Q
4Q
Total Volumes (nos)
2,40,884 2,28,590 2,34,001 2,35,557
Growth YoY (%)
19.1
3.7
10.9
-2.2
Net Realization
5,54,527 5,59,524 5,50,959 5,86,180
Growth YoY (%)
3.1
2.6
1.2
5.7
Net Op. Income
1,33,577 1,27,902
1,28,925 1,38,079
Growth YoY (%)
12.2
3.4
22.8
6.4
RM Cost (% of sales)
67.4
67.6
69.2
68.3
Staff (% of sales)
6.6
5.5
6.3
6.5
Oth. Exp. (% of Sales)
10.4
11.2
11.0
12.5
EBITDA
21,101
18,493 17,029 18,678
EBITDA Margins (%)
15.8
14.5
13.2
13.5
Other income
3,423
2,473
1,930
8,478
Interest
353
304
431
379
Depreciation
5,054
5,696
4,295
4,986
PBT
18,550
22,981
14,245 14,103
Effective Tax Rate (%)
2.0
31.3
32.2
22.6
Reported PAT
9,692
12,572
17,788
13,960
Adj PAT
12,383
16,725
14,578 10,502
Change (%)
40.7
-15.2
64.7
18.7
1Q
2,18,039
-9.5
5,87,302
5.9
1,28,055
-4.1
67.9
6.8
11.2
17,936
14.0
1,919
302
5,839
27,384
17.5
22,597
9,180
-25.9
FY20
FY19
2Q
3QE
4QE
1,91,390 2,15,929 1,81,442 9,39,032
-16.3
-7.7
-23.0
8.1
5,71,349 5,60,195 5,82,798 5,62,795
2.1
1.7
-0.6
2.8
1,09,351
1,20,962 1,05,744
5,28,482
-6.2
-23.4
-14.5
11.1
66.0
66.2
66.9
68.1
7.2
8.0
7.4
6.2
12.3
11.9
12.2
11.4
15,408
17,768 13,384
75,301
14.1
14.7
12.7
14.2
3,270
3,419
8,225
16,303
394
389
331
1,467
5,950
6,335
5,721
20,030
17,582
14,694 10,078
69,879
27.3
27.4
22.9
22.7
7,315
13,548
10,690
54,012
7,315
13,548
10,690
54,187
-26.7
-30.3
-19.0
25.4
Jinesh Gandhi - Research analyst
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Aanshul Agarawal - Research analyst
(Aanshul.Agarawal@MotilalOswal.com); +91 22 7193 4337
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.