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Decent performance amidst tough times
Beat in automotive segment, tractor segment disappoints
M&M + MVML performance was better than expected in Q4 FY19 with EBIDTA margin at 13.5% compared to our estimates of 11.9% and PAT coming in at Rs9.7bn v/s our forecast of Rs9bn. EBIT margins in the automotive segment were ahead of forecasts (8.8% v/s 6.5% estimate) whereas tractors segment reported weaker than estimated EBIT margins (16.2% v/s 19% estimate). EBIDTA margins were lower by 160bps yoy owing to continued rise in raw material costs and lower contribution of higher margin tractor segment. Sequentially, OPM improved 32bps owing to sharp jump of 298bps in EBIT margins for the automotive segment as Q3 FY19 had impact of new launch expenses (Marazzo, Alturas). Higher than expected other income was offset by higher than forecasted tax rate and depreciation.
Single digit industry volume growth outlook
For FY20, M&M has guided for an industry volume growth of 3-5% for PVs, 10-12% for CVs and 5% for tractors. The outlook for CVs and PVs is in line with SIAM forecasts. However, considering the recent outcome of general elections, management is hopeful of a relatively better growth. Tractor industry, following three years of strong growth, is expected to slow down especially in H1 FY20 owing to high base effect. Increasing penetration of mechanization will help in the growth of implements business. The automotive segment will see gyrations owing to the implementation of BS VI norms from April 2020. Inventory management will be a key in this phase. Considering this, we expect M&M to report an uninspiring FY19-21E revenue and PAT CAGR of 8.7% and 2.4% respectively. Valuations appear fair at FY21E standalone P/E of 16x. We assign an ADD rating with a 1-year price target of Rs747.
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