Buy Mahindra & Mahindra Ltd For The Target Rs.1,390 By Emkay Global Financial Services
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BII deal unlocks value for E-PV business; Buy
* MM has announced that British International Investment Plc (formerly CDC Capital) will invest Rs19.25bn by way of CCPS in its E-PV subsidiary (EVCo) for a post-conversion equity stake of 2.75-4.76% in FY28. The eventual stake will depend on the EVCo’s revenue achievements by FY27.
* Investments by BII and MM in the EVCo will be utilized to create an E-UV portfolio. Four products are expected to be launched on new dedicated platforms over FY25-27, while one product (XUV 400) will be launched on the existing platform in Sep’22. The aspirational sales target is 200,000 units, representing a 30% EV share by FY27.
* We remain positive on MM due to the sales upcycle across segments and a large orderbook in PVs (~170,000 units). We raise FY23-24E EPS estimates by 5% based on a 3% increase in our volume assumptions. Following the revision, our FY22-24E revenue/earnings CAGRs stand at 22%/24%.
* We retain Buy with a higher SOTP value of Rs1,390 (Rs1,250 earlier), as we add Rs233/sh for the E-PV subsidiary, based on 3.3x FY27E EV/sales, discounted to present value. However, the standalone fair value has reduced by 10% as we factor in the valuation of only ICE-PV business.
Key takeaways from the Analyst Meet
* MM’s recent UV launches have been highly successful and have led to a large pending order book – XUV700 (80,000 bookings), Thar (26,000), XUV300 (14,000) and Bolero (15,000). Management hopes to repeat the same in the upcoming E-PVs as well.
* The new subsidiary (EVCo) will carry out the E-PV business and related assets will be transferred to it. MM’s total investment in this business as of Mar’22 stands at Rs4bn.
* The parent entity (MM) and group companies will provide support in manufacturing, sourcing, designing, branding and other shared services on an arms-length basis. The EVCo will own pure-EV brands that will be launched in the future. MM will help in leveraging its eco-system of suppliers, dealers and financiers.
* Under MM’s agreement with BII, both entities have agreed to invest up to Rs19.25bn each in the EVCo in two tranches. The first tranche would be up to Rs12bn each and would be completed by Jun’23. The second tranche would be Rs7.25bn each and would be completed by FY24, subject to the achievement of certain sales milestones.
* The total investment in the E-PV entity is expected to be Rs100bn, staggered over FY22/23 at Rs20bn, FY24 at Rs20bn and the remaining Rs60bn over FY25-27. MM plans to meet a part of the funding over FY24-27 directly, or through debt/third-party investors.
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