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Steady performance

Valuation and View

M&M (MM) 3QFY23 results were broadly in?line on operating front while higher other income at Rs6.7b (est Rs2.4b), lead to beat at Adj.PAT at Rs21.5b (est Rs16.3b). The key highlight of the quarter was continued increase in auto segment margins (EBIT) at 6.7% (+320bp YoY/ +70bp QoQ). This in a way achieved management target of ~300bp gains ahead of time. We reckon, margins to remain at an elevated level led by 1) price hikes and end of introductory pricing for XUV7OO, Thar and Scorpio N, 2) moderating RM inflation and 3) cost controls. The second highlight of the quarter was ~20bp QoQ expansion in FES margins at 16.6% (this is at time when ESCORTS’s EBIT remained multi quarter low at 8.4%). MM don’t expect significant cost hike due to RDE (Rs9?15k/unit and Rs20?22k/unit for some brands) is positive.

We raise FY24/25 EPS led by ~3% led by price hikes, higher other income. While we expect auto business to lead the growth over FES, deterioration in the mix would restrict Revenue/EBITDA/PAT CAGR to ~12%/17%/20% over FY23?25E. Implied core P/E for MM stands at 11.4x/10x FY24/FY25E EPS is attractive. Hence, we maintain ADD rating on the stock with revised SoTP based TP of Rs1,561 (v/s Rs1,500 earlier) on Sep’24 EPS.

Result Highlights? Operationally in?line, higher other income boost PAT

* Revenues grew 3% QoQ (+41% YoY) at Rs216.5b (in?line) as 3.2% QoQ growth in volumes partially offset by 0.5% decline in ASPs at Rs765.2k/unit. M&M have taken average ~1?1.3% price increase in Jan’23 in tractor segment followed by ~2% in 2QFY23 and 1% Nov’22 and Auto 1.5%?2% in Sep’22.

* Gross margins expanded 50bp QoQ (?130bp YoY) at 24% (est 24.7%).  

* However, led by lower other expense at Rs14.6b (?4% QoQ, est Rs15.8b), EBITDA came in line at Rs28.1b (+12.7% QoQ/ +56% YoY) with margins at 13% (+110bp QoQ/ +130bp YoY).

* Segmental EBIT % – Auto +70bp QoQ (+320bp YoY) at 6.7% (8 qtr high), FES at 16.6% (+20bp QoQ/ ?80bp YoY).  

* Other income came in higher at Rs6.7b (est Rs2.4b) leading to Adj.PAT came in better at Rs21.6b (est Rs16.9b, ?7% QoQ).

* 9MFY23 performance? Consol Revenue/EBITDA/Adj. PAT grew 54%/50%/53%.

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