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Published on 14/03/2018 3:02:44 PM | Source: Emkay Global Financial Services Ltd

Buy Mahindra and Mahindra Ltd For Target Rs.890.00 - Emkay

* Standalone (including MVML) EBITDA margin expanded by 120bps yoy to 14.7% (Emkay Est: 15.4%), led by higher scale and GST-related adjustments in Farm division. Farm and Automotive EBIT margin expanded yoy, by 100bps and 140bps, respectively. Miss on margin estimate, was led by higher-than-expected other expenses.

* Management expects Tractor industry to grow by 15-18% (earlier 12-14%) in FY18 and 8- 10% in FY19. Several product launches such as U321 Utility Vehicle, S201 Utility Vehicle, new Swaraj Tractor platform, new Intermediate Commercial Vehicle, etc, have been planned in FY19 to support sales across segments.

* Our earnings estimate remains broadly unchanged, despite increase in volume assumptions, owing to reduction in EBITDA margin and other income estimate. Revenue/earnings are likely to grow at CAGR of 13%/14% over FY17-20E.

* We retain BUY with SOTP-based TP of Rs890 (earlier Rs870), based on 16x core FY20E earnings and value of investments at Rs243/share (earlier Rs213/share).

* Healthy quarter: Standalone (including MVML) revenue rose by 10% yoy to Rs114.9bn (Emkay Est: Rs113.6bn), led by growth of 7% in volume (7% in Auto segment and 6% in Farm segment) and 3% in realization. EBITDA margin expanded by 120bps yoy to 14.7% (Emkay Est: 15.4%), led by higher scale and GST-related adjustments in Farm division. Farm and Automotive EBIT margin expanded yoy, by 100bps and 140bps, respectively. Miss on margin estimate, was led by higher-than-expected other expenses. Adjusted PAT grew by 22% yoy to Rs9.2bn (Emkay Est: Rs9.7bn), which is below estimate due to lowerthan-expected EBITDA and other income. Reported numbers included exceptional income of Rs3.9bn, relating to profit on sale of long term investments.

* Conference call highlights: 1) Tractor industry to grow by 15-18% (earlier 12-14%) in FY18 and 8-10% in FY19, 2) Cumulative price hike of ~3% and ~2% in Tractor and Automotive segments over past one year, 3) Several product launches such as U321 Utility Vehicle, S201 Utility Vehicle, new Swaraj Tractor platform, new Intermediate Commercial Vehicle, etc, have been planned in FY19, and 4) Key risks ahead are deficient monsoon, higher interest rates and increase in commodity prices.

* Retain BUY: Our earnings estimate remains broadly unchanged, despite increase in volume assumptions, owing to reduction in EBITDA margin and other income estimate. Revenue/earnings are likely to grow at 13%/14% over FY17-20E. We retain BUY with SOTP-based TP of Rs890 (earlier Rs870), based on 16x core FY20E earnings and value of investments at Rs243/share (earlier Rs213/share).

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