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Recommendations India

Mahindra & Mahindra 3QFY2014 performance highlights and results update

February 17, 2014, Monday, 12:16 GMT | 07:16 EST | 16:46 IST | 19:16 SGT
Contributed by Angel Broking

Mahindra & Mahindra (MM) reported in-line results for 3QFY2014, led by strong growth in the farm equipment segment (FES) following robust volume growth of 21% yoy. The automotive segment (AS) however continued posting poor performance, which was on expected lines, given that the volumes witnessed a steep drop of 11.9% yoy during the quarter. The profitability in the AS, nevertheless, remained strong on account of price increases and cost rationalization efforts. The Management now expects the tractor industry to grow at a rate of ~20% (15-18% earlier) for FY2014E and expects a growth of 8-10% for FY2015E driven by the strong monsoons, continued labor shortage and better prospects for kharif and rabi crops. The growth in the utility vehicle segment though, is expected to remain under pressure in the near term due to the absence of new product launches. The Management indicated that it has lined up new launches based on three new platform starting from CY2015. We expect UV volumes to grow modestly by ~6% and build in an ~10% volume growth for tractors for FY2015E. We expect continued momentum in tractor volumes coupled with pricing discipline and cost control measures to offset the weakness in the AS going ahead. We broadly maintain our estimates for FY2014E/15E. We maintain our Buy rating on the stock.

In-line operating performance driven by FES: For 3QFY2014, the top-line declined by 2% yoy to Rs.10,556cr, in-line with our estimates of Rs.10,415cr, primarily due to a 1.8% yoy decline in volumes. The volume growth continues to be impacted due to the decline in the AS amid higher competition in the utility vehicle segment. EBITDA margins expanded strongly by 185bp yoy (27bp qoq) to 13.1%, in-line with our expectations of 13.2%, driven by price increases, cost control measures and superior product-mix (lower share of traded goods following decline in automotive volumes and higher share of tractors in the product-mix). The bottom-line grew by 11.7% yoy to Rs.934cr, slightly higher than our estimates of Rs.902cr, aided by 27.5% yoy growth in other income.

Outlook and valuation: We retain our positive view on MM given its diversified business model which we believe will help the company to face the macroeconomic challenges better than its competitors. We maintain our Buy rating on the stock with a SOTP target price of Rs.1,061.