IGI Logo

In-line Qtr; Robust demand for UVs to make up for peaking Tractor cycle

JM Financial Institutional Securities Limited JM Financial Research is also available on: Bloomberg - JMFR , Thomson Publisher & Reuters, S&P Capital IQ, FactSet and Visible Alpha Please see Appendix I at the end of this report for Important Disclosures and Disclaimers and Research Analyst Certification. Mahindra & Mahindra (M&M) reported 3QFY23 EBITDA margin of 13% (+130bps YoY, +110bps QoQ), broadly in line with JMFe. In tractor segment, despite high base of FY22, industry is expected to grow by high-single digit in FY23 on the back of healthy crop cycle, better farm realisation and higher government spends. In auto segment, capacity constraints continue to restrict growth in SUV segment. Gradual addition to SUV capacity (by 4QFY24), high outstanding bookings (266k+ open bookings) and healthy new bookings’ rate are likely to drive the sales growth going ahead. Operating leverage and cost control initiatives is expected to support the margin performance going ahead. Driven by new capital allocation policy and strong demand tailwind in autos, we maintain BUY with a Mar’24 target price of INR 1,600 (SOTP valuation, 16x core business). Peaking tractor cycle is the key risk to our call.

* 3QFY23 – Margin in-line: In 3QFY23, M&M reported net sales of INR 216.5bn (+41% YoY, +3%QoQ), broadly in-line with JMFe. EBITDA margin stood at 13% (+130bps YoY, +110bps QoQ), broadly in-line with JMFe. Auto EBIT margin stood at 6.7% (+320bps YoY, +70bps QoQ), 20bps above JMfe. Farm segment EBIT margin stood at 16.6% (- 70bps YoY, +20bps QoQ), 40bps below JMFe. EBITDA stood at INR 28.1bn (+56%YoY, +13%QoQ), in-line with JMFe. Adj. PAT for the quarter stood at INR 21.6bn (+62%YoY, - 7% QoQ), 12% above JMFe driven by higher other income. Exceptional loss of INR 6.3bn was owing to impairment of certain assets of trucks & buses business

* Tractor - 3QFY23 update & outlook: M&M’s total tractor volume stood at c.105.8k units (+14% YoY, +13% QoQ). Improvement in volumes was led by higher government spending on infrastructure, better crop cycle and higher farm realisation. It’s tractor market share improved by 90bps YoY to 41.4% during 9MFY23. M&M indicated that it has taken significant price hikes (~INR 80k) in the past 2 years to pass through RM inflation and thus further price increases are unlikely. Given the high base of FY23, the company expects growth to moderate in FY24.

* Automotive segment - 3QFY23 update & outlook: M&M maintained its leadership in revenue market share for SUV segment at 20.6% for 3QFY23 (19.9% for 2QFY23). The company’s Auto division continues to witness capacity constraints even as overall supplies have started easing. The company has brought down the waiting period by c.1-1.5 months (to 10-12 months now) and plans to reduce it further. SUV capacity is planned for ramp-up to 39k units/month by 4QFY23 and 49k units/month by 4QFY24. Management indicated that the underlying demand remains robust with total open bookings at 266k+ units (as on 1st Feb) with strong avg. new booking run-rate of c.50k units/ month. Scorpio-N has garnered c.119k bookings while the recently launched electric SUV XUV400 has c.15k+ bookings so far. Development of ‘Born Electric’ models is on track. Exports continue to remain muted owing to macro challenges in key markets like Sri Lanka and Bangladesh. Management indicated that the company has achieved Auto EBIT margin target (of 6.5%) much before it had anticipated and endeavours to increase its further led by positive operating leverage and cost control initiatives.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361

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