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Strong performance; Outlook positive

Mahindra & Mahindra Ltd. (M&M) manufactures automobiles, farm equipments and automotive components. The company also manufactures agricultural tractors, agricultural implements and agricultural engines.

* Mahindra & Mahindra Limited registered strong revenue growth of 20.9% in Q4FY22 by reaching Rs. 25,934.4cr., driven by strong recovery in auto business. M&M reported 39.7% YoY increase in Adj. PAT in Q4FY22 to reach Rs. 1,943.6 cr.

* EBITDA margin contracted by -160bps YoY to 16.5% due to higher RM costs and weaker product mix.

* We expect M&M to regain some of its lost market share in the future backed by record high order backlog and a solid product pipeline. We reiterate our BUY rating on the stock with a revised target price of Rs. 1,173 based on 19x FY24E adj. EPS.

Topline driven by strong recovery in auto business

Revenue grew by 20.9% YoY to Rs. 25,934.4cr in Q4FY2, driven by strong recovery in auto business. Auto business delivered highest ever quarterly UV Volumes in Q4FY22 with 42% growth on YoY. Automotive segment revenue grew at 46.9% YoY to Rs. 12,492.8cr (~48.2% of total revenue). Tractor business performance was weak during the quarter, Farm equipment segment revenue declined by -6.3% YoY to Rs. 6,178cr (23.8% of total revenue). Meanwhile financial services revenue shown marginal dip of 4.9% YoY to Rs. 2,884cr. Real estate revenue reported at Rs. 1623cr (+163% YoY), Hospitality segment revenue reported at Rs. 542cr (+15.8% YoY) and other segments reported at Rs. 4,456cr (+24% YoY).

RM costs inflation impacts margin

EBITDA grew 10.1% YoY to Rs. 4,277.7cr in Q4FY22. EBITDA margin was down by - 160bps YoY to 16.5% on account of higher RM costs and weaker product mix. PBIT margin for the Auto business improved by 60bp YoY (+190bp QoQ) to 5.6%, however, FES PBIT margin declined by 630bp YoY (-160bp QoQ) to 15.7%. Adj. PAT in Q4FY22 grew by 39.7% to reach Rs. 1,943.6 cr.

Key concall highlights

* M&M has an order backlog of 170k+ units in UV. XUV700, has an open booking of 78k+, run-rate of 9.5k+ bookings/month.

* Tractor segment market share has improved by 180bps to 40% in in FY22. With April-May demand picking up ahead of expectations, management is now confident of the industry delivering single digit volume growth in FY23.

* M&M is the numero uno SUV player based on a 17.8% revenue market share in Auto business.

* Farm subsidiaries recorded the seventh consecutive quarter of positive PBIT.

Valuation

We expect M&M to regain some of its lost market share in the future backed by record high order backlog and a solid product pipeline. Outlook for tractor industry is also improving. We estimate PAT to grow at 5.5% FY22-24E CAGR and EBITDA margin to improve to 17% by FY24E. We reiterate to BUY with a target price of Rs. 1,173 based on 19x FY24E adj. EPS

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