20 July 2020
Annual Report Update | Sector: Automobile
Mahindra and Mahindra
TP: INR695 (+17%)
Revisiting capital allocation
Current crisis a catalyst to reboot, reinvent and reignite value creation
Mahindra and Mahindra’s (M&M) FY20 Annual Report highlights the company’s
recalibration of capital allocation to reduce losses and increase accountability of
its various businesses. Besides listing out priority areas for the auto and FES
businesses, it also explains future growth areas for farm mechanization and
shared mobility/logistics. Key insights from the Annual Report highlighted below:
M&M is focused on using the current crisis (in the form of substantial losses
in global businesses) to reboot (streamline capital allocation policy and bring
accountability), reinvent (realize the potential of few unlisted businesses) and
reignite value creation for all its stakeholders.
Positive sentiment in the rural economy should drive faster recovery for
tractors/Auto sector. Besides potential demand-side challenges (lower
incomes, job uncertainties, financing issues), supply-side bottlenecks (labor
availability, limited working hours, social distancing norms) are also expected.
It has identified priority areas for its core businesses such as strengthening of
the core business, aggressive cost optimization, reorientation of capex and
turnaround in global subsidiaries.
M&M is taking appropriate steps to strengthen its UV portfolio through new
product launches, introduction of petrol engines and leveraging the Ford JV.
The tractor business saw green-shoots during Dec’19 to Feb’20 with ~9.7%
volume growth, before the Covid-19 related lockdown hurt demand.
Consistent growth in horticulture is also driving growth for tractors.
M&M is continuing its focus on farm mechanization to address concerns of
farm productivity and labor shortage. It has an active presence in the farm
mechanization space and offers efficient and affordable mechanization
solutions across the spectrum of farming operations.
It has launched a unique delivery model – Farming-as-a-Service (FaaS) under
the brand name
– to support farmers across the crop cycle.
aims to provide an integrated agronomy advisory, mechanized services and
high-tech digital solutions to small farmers to reduce their cost of cultivation,
enhance productivity and improve farming outcomes.
M&M is also focusing on the shared logistics segment for both personal
mobility as well as cargo logistics. It further expanded its presence in this
segment by acquiring stake in
(shared personal mobility). This is in
addition to its stake in
which it had acquired in FY19 (~16.1% stake).
Mahindra Electric (subidiary focused on EVs) achieved EBITDA break-even in
FY20. e-3Ws offer good growth potential due to better operating economics
and easy deployment for first/last mile connectivity (incl. at metro stations).
Valuation and view:
Implied Core P/E for M&M is ~12.8x FY22E S/A EPS and
1.3x Core P/BV. Our Jun’22E-based SOTP TP is ~INR695/share – an upside of
~17%. At our TP, implied Core P/E is ~15.2x (v/s 5-year average core P/E of
~15.9x and 10-year average of ~14.3x). Maintain
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Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
737.9 / 9.8
621 / 246
Financials & Valuations (INR b)
2020 2021E 2022E
Adj. EPS (INR)
EPS Gr. (%)
Div. Yield (%)
Jinesh Gandhi - Research analyst
Vipul Agrawal - Research analyst
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
Bloomberg, Thomson Reuters, Factset and S&P Capital.
3 September 2019