Published on 7/12/2017 2:42:09 PM | Source: Emkay Global Financial Services Ltd

Buy Mahindra & Mahindra Ltd For Target Rs.1,740.00 - Emkay

Posted in | #Mahindra and Mahindra Ltd #Auto Sector #Broking Firm Views Report #Quarterly Result #Emkay Global Financial Services Ltd.


* Mahindra & Mahindra (MM+MVML) operating margin expanded by 190bps yoy to 16% (Emkay Est:14.2%), led by higher scale, better mix, price hikes and GST-related adjustments in Farm division. Automotive and Farm EBIT margins expanded yoy, by 130bps and 100bps, respectively.

* Management expects Tractor industry to grow by 12-14% (earlier 10-12%) in FY18, resulting in surpassing of previous sales peak of FY14.

* We increase FY18/19E EPS estimates by 5%/4% to Rs66.6/Rs78.4, led by an increase of 80bps/70bps in operating margins.

* Being the largest tractor company in India, M&M remains a key beneficiary of strong rural demand. Revenue/earnings are likely to grow at 13%/% over FY17-20E. We retain BUY with SOTP-based TP of Rs1,740 (earlier Rs1,640), based on 16x core FY20E earnings (earlier FY19E) and value of investments at Rs426/share.

* Strong operating performance: MM+MVML results have been re-stated to include financials of two-wheeler business. For Q2FY18, two-wheeler revenue and earnings stood at Rs370mn and (-)Rs120mn. Total revenue increased by 19% yoy to Rs120bn (Emkay Est: Rs119.6bn), led by growth of 16%/3% in sales volume/realization. EBITDA margin expanded by 190bps yoy to 16% (Emkay Est:14.2%), led by higher scale, better mix, price hikes and GST-related adjustments in Farm division. Automotive and Farm EBIT margins expanded yoy, by 130bps and 100bps, respectively. Overall, adj. PAT grew by 22% yoy to Rs14.1bn (Emkay Est: Rs13bn).

* Conference call highlights: 1) Tractor industry momentum to continue, with growth of 12- 14% (earlier 10-12%) in FY18. 2) Price increase of 1.5% and 1.7% was taken in Automotive and Tractor segments in Q2FY18. 3) Focus to continue on new model launches (new/variants) in UV space. U321 MPV and S201 Compact UV to be launched over next one year. 4) By 2020, all PV models will have petrol variants. Company is working on 3 models of gasoline engines with capacity of 1,200cc, 1,500cc and 2,000cc.

Retain BUY: Being the largest tractor company in India, M&M remains a key beneficiary of strong rural demand. Revenue and earnings are likely to grow at 13% and 15% over FY17-20E, respectively. Retain BUY with SOTP-based TP of Rs1,740 (earlier Rs1,640), based on 16x core FY20E earnings (earlier FY19E) and value of investments at Rs426/share. As tractor volume growth is likely to peak in FY18, and taper off in FY19-20, we reduce our valuation multiple from 18x to 16x.


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