Results ahead of estimates: Mahindra & Mahindra (M&M)’s 2QFY2016 numbers
beat our estimates on account of better-than-anticipated operating performance.
For MM+MVML (Mahindra Vehicle Manufacturers Ltd), revenues for the quarter
dipped 3% yoy to Rs8,794cr, largely in line with our estimate of Rs8,490cr, owing to
a 10% volume decline in the quarter. Automotive volumes declined 2% yoy while
tractor volumes dipped 26% yoy. However, realization/vehicle grew 8% yoy on
account of better mix and price hikes in both the automotive and tractor segment,
thereby limiting the downslide in the top-line. The operating margin, at 13.2%,
surprised positively, beating our estimate of 12%. Cost control initiatives, benign
commodity prices and price hikes boosted the margins. Given the robust
operating performance, the Adj PAT at Rs978cr came in better than our estimate of
Outlook and valuation: M&M is likely to witness volume recovery from 2HFY2016
in both the automotive and the tractor segment. In the automotive segment, M&M
recently introduced TUV 3OO which has received encouraging response and
plans to enter compact UV space in January 2016 which will likely enable it to
regain market share. Further, the recently launched small commercial vehicle
“Jeeto” and 1.2 tonner vehicle “Supro” would boost the company’s share in the
light commercial vehicle (LCV) segment. We also believe that the tractor industry
growth would revive from 2HFY2016 owing to the low base of the corresponding
previous period and relatively limited impact of deficient rainfall on kharif crop
production. M&M’s PAT is likely to grow at a CAGR of 9% over FY2015-FY2017.
We have broadly retained our earnings assumptions and maintain our
“Accumulate” recommendation on the stock with a revised SOTP based price
target of Rs1,410.

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