Mahindra & Mahindra rating – Buy: Results a little below consensus estimates

A Mahindra & Mahindra Ltd. Roxor off-road automobile sits on show throughout the 2019 North American Worldwide Auto Present (NAIAS) in Detroit, Michigan, U.S., on Tuesday, Jan. 15, 2019. With the most important focus of prime automotive and know-how executives, designers, engineers and thought leaders, the NAIAS serves as the worldwide stage for corporations to debut brand-defining automobiles and industry-shaping bulletins. Photographer: Daniel Acker/Bloomberg

Mahindra & Mahindra’s (M&M’s) Q4FY21 outcomes have been barely beneath consensus estimates as Ebitda margin got here in at 14.7% (down 227bps q-o-q). Margins have been dragged by the automotive section (Ebit margin: 5%, down 243bps), whereas FES was resilient (Ebit margin: 22%, down 139bps). Administration shared a brand new product plan (5-years) for SUVs (9 merchandise) /LCVs (14 merchandise); pure EV choices (6 merchandise) would even be developed.

Investments into electrical (Rs 30 bn) sign readability of technique as M&M would be capable to construct a studying curve benefit vis-a-vis home friends who’re funding shy on EVs. Mahindra & Mahindra administration’s aggression to realize market share in FES enterprise is prone to sound candy to buyers and their long-term development outlook additionally stays bullish (15-20% CAGR over the following 3-5 years). Valuations stay enticing. Keep Purchase.

Key highlights of the quarter: Revenues in Q4FY21 grew 48% y-o-y to ~Rs 133 bn as a result of ~60% enchancment in FES income, whereas automotive gross sales grew ~43%. Ebitda margin improved 107bps to 14.7% at the same time as gross margin confronted headwinds (commodity rise, regulatory prices) and dropped to 30.8% (down 487bps). Superior fastened value discount supported margins (different bills down 399bps y-o-y). Adj. PAT jumped 211%. M&M took an impairment cost of ~Rs 8.8 bn.

Keep BUY: The change in administration and the evolution of centered capital allocation technique (RoE>18%) has been effectively appreciated by buyers. The technique now’s getting into development acceleration section; we count on H2 to witness robust pick-up throughout PVs (led by new launches) as supply-chain woes fade away.

We revise our EPS estimates by -1%/2.8% for FY22e/23e, respectively, keep our goal a number of at 8.5x FY23e Ebitda (Rs 710/share) and worth subsidiaries at Rs 330/share to reach at SoTP-based goal worth of Rs 1,040/share (earlier: Rs 1,045). We keep Purchase on the inventory.