EUR 120.00 For Business Accounts Only

MOSL: MAHINDRA & MAHINDRA (Buy)-Tractor slowdown ahead, but global FES subs turned around

MAHINDRA & MAHINDRA: Tractor slowdown ahead, but global FES subs turned around

(MM IN, Mkt Cap USD12.7b, CMP INR758, TP INR890, 17% Upside, Buy)

 

• The beat in Mahindra & Mahindra (MM)’s 1QFY22 operating performance was driven by cost-saving initiatives, which diluted the impact of cost inflation. Growth in Tractor is slowing, particularly on the high base of FY21. However, the Auto segment is expected to see strong momentum in both LCVs (cyclical recovery) and SUVs (led by new products and the easing of supply issues).
• We cut our FY22/FY23 EPS estimate by 9%/13.5%, accounting for an expected slowdown in the Tractor industry. We maintain our Buy rating, with TP of INR890/share (Mar’23E SOTP).

 Good performance supported by mix and lower costs

• The merger of MVML in MM was effected from 1QFY22 results, with the effective date as 1^st Apr’19. MM’s S/A revenues / EBITDA / adj. PAT declined 12%/17%/7% QoQ to INR117.6b/INR16.3b/INR9.34b in 1QFY22.
• Volumes fell 8% QoQ. Net realizations fell 4.5% QoQ (+7% YoY) to INR629.8k/units (est. INR642.7k), impacted by a mix change. Auto realizations declined 4%QoQ (+1% YoY), while FES realizations were flat QoQ (+5% YoY).
• The EBITDA margin declined just 80bp QoQ to 13.9% (v/s est.12.9%) despite a sharp increase in employee costs (+11% QoQ) – driven by a 120bp reduction in other expenses, despite lower volumes. EBITDA declined 17% QoQ to INR16.3b (v/s est. INR15.5b).