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Aggressive growth plans unveiled…

Mahindra & Mahindra (M&M) reported soft Q4FY21 results. Standalone net sales were at | 13,512 crore (up 47.8% YoY, down 4.9% QoQ). Automotive ASPs were up 7% QoQ to | 7.41 lakh/unit while tractor ASPs grew 2% QoQ to | 5.3 lakh/unit. Standalone EBITDA margins at 13.2% were down 280 bps QoQ amid 110 bps sequential decline in gross margins. Automotive EBIT margins fell ~330 bps QoQ to 3.1% while tractor margins were down ~140 bps QoQ to 22%. Standalone PAT came in at | 48.4 crore impacted by a large impairment hit of | 887 crore in relation to long term investments and lower other income. M&M declared a dividend of | 8.75/share for FY21.

Product excitement underpins growth ambitions

M&M outlined its vision for a healthy operational performance across all key parameters over the longer term. It is looking at 15-20% CAGR sales and EPS CAGR by 2025 along with a sharp improvement in profitability (RoE, RoCE ambition set at >18%). The company seeks to play upon its core strengths by regaining SUV leadership and consolidating its hold over the <3.5T LCV and tractor segments. As part of the drive, M&M revealed that new product introduction is set to gain sizeable momentum, with the action set to span (1) nine PV models, (2) 14 LCV models and (3) 37 tractor models over by 2026. PV pipeline incorporates four electric variants (including for XUV300) and two new EVs while the first fully electric LCV for last mile mobility needs (‘Atom’) could be launched as soon as 2022. Definitive roadmap for EV launches across PV, 3-W and CV ranges is encouraging and demonstrative of ambitions in the sunrise space, with M&M having indicated EV capex spend of | 3,000 crore in FY22E-24E.

Automotive segment to outperform tractors

Supply constraints related to semiconductor shortages and localised lockdowns amid the ongoing second Covid-19 wave are set to impact near term volumes across automotive and tractor divisions. As an element of normalcy returns post Q1FY22E, however, we expect automotive segment to outperform given the refreshed push for personal mobility, intact offtake from e-commerce industry, good response for new Thar and relatively higher base for tractor segment. Related mix normalisation along with persistent nature of sharp commodity cost inflation is seen leading to a dilution of blended margin profile. We build 16.5%, 6.2% automotive, tractor volume CAGR over FY21-23E with EBITDA margins seen at 13% by FY23E.

Valuation & Outlook

We expect 16% sales CAGR in FY21-23E with adjusted PAT seen at | 4,507 crore in FY23E. Focus on prudent capital allocation, healthy growth plans and EV proactiveness help us maintain our positive stance on M&M. We retain BUY, valuing it at a SOTP-based unchanged target price of | 1,000 (10x FY23E EV/EBITDA for base business; 30% holding company discount to its investments in both listed as well as unlisted businesses).

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