IGI Logo

In line quarter, SUV segment to drive growth

M&M reported inline EBITDA margin of 11.9% which is down 60bps QoQ on higher RM cost. While tractors sales have slowed down over a high base and stress in rural segment, Auto segment is showing improvement as its EBIT margin improved 100bps QoQ to 3.7%. With healthy order book (155k units, 5-6 months) and improving supply constraints we expect Auto segment to drive growth in the medium term. Tractor segment could see improvement in FY23 depending on crop yield and monsoons. RM cost underrecovery remains higher in Auto segment and costs remain at high levels and will take some time to normalise. Hence, we have to cut our EBITDA margin by 80bps/50bps for FY22/23. However, earnings is up by 1%/2% on higher other income driven by dividends from improving subsidiaries. But, as the CMP of some of its listed subs have corrected, the SoTP has come down. Maintain BUY, revised TP of Rs1,081.

Inline operating performance

M&M standalone EBITDA margin came at 11.9% vs CBL est. of 12%. Margin is down 60bpsYoY on higher RM costs. Total revenue was Rs152.34bn which is up 8.4%YoY and 15% MoM. PAT at Rs13.5bn was 3% ahead of our expectation on lower tax rate. Auto segment: Revenue came at Rs95.5bn, up 15%YoY as volumes declined 1% YoY and ASP was up 16% YoY. Sequentially, volumes were up 43% but ASP declined 16% resulting in a lower 21% revenue growth. EBIT margin came at 3.7% up 100bps QoQ but down 400bps YoY on higher RM costs. FES(Farm Equipment/Tractor) segment: Revenue came at Rs52.2bn, down 1.2%YoY as volumes declined 8.6% YoY and ASP was up 8.1% YoY. Sequentially, volumes were up 5% and ASP was up 2% resulting in a 6% revenue growth. EBIT margin came at 17.3% down 140bps QoQ on higher RM costs.

Tractor demand moderated, SUV demand strong

The slowdown in the tractor industry is for three reasons - Government spending in rural and agriculture (on all major schemes) is lower than last year. Farm input inflation continue to soar high. WPI Food Inflation increased to 10% YoY yet remained significantly lower than farm input inflation. Delayed and excess rains in the kharif harvesting months impacted standing crops resulting in drop in agri output. In Auto, Total open bookings are at 155k+, XUV 300 (11k open bookings and 7.5k new bookings per month in Q3), Bolero (14k and 7k), Scorpio(9k and 5.5k), Thar(31k and 4k) and Bolero Pickup(13k and 14k). Currently there is 5-6 months of waiting in SUV models, same as the industry. Cancellations are at 10% levels. New Scorpio will be coming in Q1FY23

Huge growth potential in SUVs as chip shortage eases; maintain BUY

With healthy order book (155k units, 5-6 months) and improving supply constraints we expect Auto segment to drive growth in the medium term. Tractor segment could see improvement in FY23 depending on crop yield and monsoons. RM cost underrecovery remains higher in Auto segment and costs remain at high levels and will take some time to normalise. Hence, we have to cut our EBITDA margin by 80bps/50bps for FY22/23. However, earnings is up by 1%/2% on higher other income driven by dividends from improving subsidiaries. But, as the CMP of some of its listed subs have corrected, the SoTP has come down. Maintain BUY, revised TP of Rs1,081

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer