Published on 7/02/2018 2:59:16 PM | Source: Motilal Oswal Securities Ltd

Mahindra And Mahindra (FY17) - Annual Report - Motilal Oswal

Mahindra and Mahindra’s (MM) annual report highlights muted operating performance. Consolidated revenue grew 11% to INR889.8b (FY16: INR804.6b). EBITDA margins declined 40bp to 12.1% leading slower EBITDA growth of 3% to INR107.3b (FY16: INR100.8b). Higher other income and exceptional gains led to 14% growth in PAT to INR40.5b (FY16: INR35.5b). Farm equipment services (FES) delivered a stellar growth (32% in EBT); however negative contribution of other segments at EBT level led to consolidated segment EBT remain muted at IRN52.6b (FY16: INR52.9b). Aggregate losses in subsidiaries reduced to INR0.1b (FY16: INR8.0b), largely led by a) one offs of net exceptional gains and lower impairment provision v/s FY16 and b) Turnaround in Ssangyong with PAT of INR2.3b (FY16: loss of INR1.6b). This was despite weak operating performance of MMSFL, wherein PAT declined to INR4.0b (FY16: INR6.7b). MM’s continued acquisitions led to increase in intangibles to INR45.1b, 12.5% of NW (FY16: INR36.6b, 11.3% of NW). Standalone OCF declined to INR39.7b (FY16: INR54.8b) due to increased working capital requirement (primarily trade receivables), leading to decline in earnings to cash conversion to 101.3% (FY16: 134.1%).

* Standalone + MVML reports low growth: MM core business of Automotive (AD) and Farm Equipment Services (FES) reported muted EBITDA margins of 13.5% (FY16: 13.5%). Revenue grew by 7.7% to INR419.0b (FY16: INR388.9b) and EBITDA grew by 7.8% to INR56.6b (FY16: INR52.5b) which was primarily driven by stellar growth in FES. FES segment volumes grew 22.8% to 263,021 tractors (FY16: 214,173 tractors), driven by positive rural sentiment. However, AD volume grew marginally by 2.5% to 506,624 vehicles (FY16: 494,096 vehicles).

* Subsidiaries – a mixed bag of performance: Aggregate revenue of subsidiaries grew 8% to INR579.1b (FY16: INR536.2b). Losses reduced to INR0.1b (FY16: INR8.0b), largely led by (a) one offs of net exceptional gains (at INR3.1b) on sale of franchisee business and no impairment provision in FY17 (v/s impairment of INR 6.6b in FY16 for retail and aerospace businesses and (b) turnaround in Ssangyong with PAT of INR2.3b (FY16: loss of INR1.6b). This was despite weak performance of MMSFL where in the PAT declined to INR4.0b (FY16: INR6.7b).

* Earnings to cash flow conversion declines: Standalone OCF declined from INR54.8b in FY16 to INR39.7b in FY17 owing to increase in receivables and slower growth of trade payables. Earnings to cash conversion ratio declined to 101.3% (FY16: 134.1%). Consequently, free cash flows post interest declined to INR17.8b (FY16: INR31.2b).

* PAT growth of 14% led by non-core items: Higher other income at INR7.3b, 14.6% of PBT before exceptional gain (FY16: INR5.2b), and exceptional gain at INR4.5b, 8.9% of PBT before exceptional gain (FY16: INR0.3b) cumulatively contributed INR11.8b (FY16: INR5.5b) to profits and thereby leading to PAT growth of 14.0% to INR40.5b (FY16: INR35.5b).

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