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MOSL: MAHINDRA & MAHINDRA (Buy)-Above our estimate; strength in the Auto business drives performance

MAHINDRA & MAHINDRA: Above our estimate; strength in the Auto business drives performance

(MM IN, Mkt Cap USD15b, CMP INR893, TP INR1150, 29% Upside, Buy)

 

Huge order book, easing semiconductor supplies, and upcoming new Scorpio launch to dilute weakness in the Tractor business

• The beat in MM's 2QFY22 performance was driven by better mix in the Auto business, cost-saving initiatives, and higher other income. Growth in Tractors is slowing, particularly on a high base of FY21. However, the Auto segment is expected to see strong momentum in both SUVs (led by new products and the easing of supply issues) and LCVs (cyclical recovery).
• We increase our FY22E/FY23E EPS estimate by 9%/8% to factor in stronger than expected XUV700 response as well as an improving LCV cycle. We maintain our Buy rating, with a TP of INR1,150/share (Sep'23E SoTP). 

Cost savings, operating leverage, and higher other income drives beat

• MM's standalone revenue/adjusted PAT grew 15.5%/31% YoY and 13%/81% QoQ to INR133b/INR16.9b, while EBITDA declined by 17% YoY (+2% QoQ) to INR16.6b. Revenue/EBITDA/adjusted PAT grew 46%/28%/ 97% in 1HFY22.
• Volumes grew 3% YoY and 2% QoQ. Net realization grew 12% YoY and 11% QoQ to INR698k/unit (est. INR640.6k), driven by ~13% YoY and 12% QoQ growth in Auto segment realization to ~INR779k/unit. Tractor realizations grew by ~8% YoY and 4% QoQ to INR551k/unit.
• Gross margin declined by 6pp YoY (-320bp QoQ) to 27.2% (est. 28.5%), impacted by commodity cost and adverse mix (lower Tractor sales).