Accumulate Mahindra & Mahindra Ltd For Target Rs.1860 By Elara Capital
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Margin beats estimates
Margin expands 20bp QoQ to 12.8%
Mahindra & Mahindra (MM IN) Q3 revenue rose 17% YoY and 4% QoQ to INR 252.9bn, as we had estimated. Standalone EBITDA surged 15% YoY and 6% QoQ to INR 32.4bn, leading to an EBITDA margin of 12.8%, up 20bp QoQ, led by increasing farm segment’s revenue contribution. EBIT margin for farm fell 50bp QoQ to 15.5% as Q3 had a one-off impact of 0.7% due to the World Cup ad spend while auto EBIT margin was up 40bp QoQ to 8.3%. Q3 EBIT/vehicle rose 16% QoQ for auto to INR 83,200 while for farm it fell 3% QoQ to INR 102,000. Farm machinery revenue was at INR 2.2bn, down 1% QoQ).
Management guided for a mid to high teens UV growth in FY25
M&M’s order book reduced to 226k units as on Feb 1st vs 286k as on 1st Nov 2023. This was cancellation rate increasing to 10% in Nov-Jan’24 period owing to seasonality as per management. The incremental order intake is ~50k per month as per management. On the UV side, MM targets Q4FY24 exit production capacity of 49,000 vehicles per month. For FY25, MM targets mid to high teens growth for its SUV portfolio. For tractors, it expects a 5-6% contraction in FY24, led by weaker growth in South India. Q4 volume should decline ~10% YoY.
Valuation: reiterate Accumulate with a higher TP of INR 1,860
M&M’s order book reduction owing to higher cancellation rate in the last few months would need monitoring. It needs to find ways to increase their volume contribution from lower priced variants of XUV 700 to sustain the volume momentum. The response for the new launches of Thar 5-door and XUV 300 refresh in the next six months will be keenly watched. The farm segment may post sluggish volume growth on high base. We expect margin to expand 120bp during FY23-26E. M&M margin delivery on auto segment has been impressive. We reiterate Accumulate with a higher SOTP-based TP of INR 1,860 from INR 1,688 as we roll forward to FY26. We value total automotive at ~20x P/E and the farm segment at 18x FY26E P/E with a subsidiary value of INR 400 (from INR 365).
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SEBI Registration number is INH000000933
