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Mahindra and Mahindra 2QFY2013 performance highlights and results update

Contributed by Angel Broking

Mahindra and Mahindra (MM) reported a strong performance for 2QFY2013, which was in-line with our estimates, backed by the robust growth in its automotive segment. However, the EBITDA margin was slightly lower-than-expected due to lower margins in the farm equipment segment (FES) on account of lower volumes. Going ahead, we expect utility vehicles (UVs) to drive the overall volume growth led by new launches (XUV5OO, Quanto and Rexton). Further, a revival in the domestic tractor volumes in 2HFY2013 on expectation of good Rabi crop may arrest further fall in FES volumes. We have revised upwards our revenue and earnings estimates for FY2013E/14E led by increase in net average realization due to better product-mix and price hikes and higher other income in 2QFY2013. We retain our positive bias on MM and maintain our Buy rating on the stock.

Strong 2QFY2013 performance driven by the automotive segment: For 2QFY2013, MMRs.s top-line registered an in-line growth of 33.4% yoy (4.8% qoq) to Rs.9,813cr driven by 58.3% yoy (13.9% qoq) growth in the automotive segment revenues. Total volumes registered a modest growth of 6.9% yoy (2.9% qoq) as the FES volumes declined 13.1% yoy (16.3% qoq) in the wake of a below normal monsoon. Automotive segment volumes, however, posted a strong 16.3% yoy (12.1% qoq) growth led by a 31.5% yoy growth in the utility vehicle portfolio, backed by the XUV5OO. The net average realization jumped 24.8% yoy (up 1.5% qoq) led by a higher share of the XUV5OO in the volume-mix and price increases over the last one year. The EBITDA margin contracted 60bp yoy (44bp qoq) to 11.4% largely due to raw-material cost pressures. However, the employee and other expenditure as a percentage of sales declined by 1 00bp and 80bp yoy respectively mainly due to operating leverage benefits. Led by a strong operating performance, the net profit grew robustly by 22.3% yoy (24.3% qoq) to Rs.902cr.

Outlook and valuation: At Rs.858, MM is trading at 13.7x FY2014E earnings. We retain our positive bias on MM and maintain our Buy rating on the stock. Our sum of the parts (SOTP) target price works out to Rs.986, wherein the companyRs.s core business fetches Rs.722/share and the value of its investments works out to Rs.264/share.