MOSL: MAHINDRA & MAHINDRA (Buy)-Above est.-EBITDA margin at 11.7% despite BS-3 impact

​Mahindra & Mahindra: Above est.; EBITDA margin at 11.7% despite BS-3 impact; Upgrade S/A EPS

(MM IN, Mkt Cap USD12.5b, CMP INR1362, TP INR1603, 18% Upside, Buy)

• 4QFY17 volumes grew 3.4% YoY to 188k, driven by 16% growth in Tractors and ~1% decline in UVs. Net realizations stood at ~INR563.6k (est. of ~INR540k). Net revenues grew 4% YoY to ~INR106.1b (est. of ~INR101.7k).
  
• EBITDA margin shrunk 100bp YoY (-200bp QoQ) to 11.7% (est. of 11.9%), impacted by provision of INR1.7b due to BS-III ban (adj. margins at 13.2%). PBIT margin contracted 270bp YoY to 7.2% for Auto business, but improved 170bp to 17.3% for Tractors. Higher other income and lower tax led to adj. PAT growth of 17% YoY to ~INR8b (est. of ~INR6.2b).
  
• For FY17, net sales grew by ~8% to INR419b and adj. PAT by 12% to INR37.4b.
  
• Takeaways from meeting: a) Expecting double-digit growth for Tractors in FY18. b) Expects UVs to grow in line with PV industry, as UV share in India is now comparable with global markets. c) Hybrid Scorpio (~2.5k units/month) to see ~15% price increase under GST. d) To launch new MPV, KUV, Scorpio and XUV refreshes in FY18, and two new launches in SCV segment. e) Recently launched Tractor Jivo (24HP) for horticulture application. f) Capex for three years is likely to be INR120b (incl. investment of ~INR45b). g) Plans to sell 5k units/month of EVs over next three years (v/s 100/month currently). h) 2W business adj. losses halved post restructuring.