EUR 120.00 For Business Accounts Only

MOSL: MAHINDRA & MAHINDRA (Buy)-Above est.-Superior operating performance despite weak volumes

MAHINDRA & MAHINDRA: Above est.; Superior operating performance despite weak volumes

(MM IN, Mkt Cap USD10.1b, CMP INR580, TP INR680, 17% Upside, Buy)

• Total volumes declined ~16% YoY. Realizations grew 2.1% YoY to ~INR571.3k (v/s est. ~INR580.2k). Net revenues (incl. MVML) declined 14.5% to ~INR109.4b (v/s est. ~INR111b). EBITDA margins declined 40bp YoY (flat QoQ) to 14.1% (v/s est. 12.2%). Margin beat was driven by better mix, price increases and lower RM costs. PBIT margins for Autos declined ~210bp YoY (-70bp QoQ) to 5.8% and for Tractors, it declined 90bp YoY (flat QoQ) to 19.3%. Adj. PAT declined 19% YoY to ~INR13.5b (v/s est. ~INR14.7b). It is yet to adopt new tax regime.
• 1HFY20 revenue/EBITDA/PAT has grown -9%/-16%/19%. CFO in 1HFY20 has declined ~90% due to weak operating performance and increase in working capital. With capex (incl. investments in subsidiaries) stable at ~INR27.9b, FCFF was negative at ~INR26.5b (v/s -INR11.5b in 1HFY19).
• Takeaways from the earnings call: (a) MM's festive season retail sales for Tractor declined 4%, while it grew 23% for the Auto segment; (b) 2HFY20 PV industry outlook - UVs to grow 12-13%, cars to decline 8-10% and overall PVs to decline 5-6%; (c) Tractors should decline 7-8% (v/s earlier guidance of up to 5% decline) in FY20; (d) Inventory - Autos 5-6k units short of target and Tractors are at targeted level but would further reduce by 1-1.5k in 3QFY20; and (e) It has reduced discounts in Auto segment post the festive season.