The results for M&M include the combined results of Mahindra and Mahindra Limited (M&M) and Mahindra Vehicle Manufacturers Limited (MVML), which is a 100% subsidiary of M&M. Results for the combined entity beat estimates at revenue and PAT level and were in-line with estimates at EBITDA level in Q2FY19.
Revenues for M&M + MVML were up 6% yoy (4% qoq lower) at Rs12,790cr in Q2FY19. This was ahead of estimate of Rs12,558cr. Operating margin contracted 154bps yoy (134bps qoq) to 14.5%. The company kept operating, manufacturing and employee costs under check; however, raw material expenses put pressure on operating performance. At Rs1,849cr, EBITDA was 4% yoy lower (12% qoq lower), in-line with estimate. PAT (before exceptional income) was Rs1,641cr, up 16% yoy (33% qoq). PAT significantly surpassed estimate of Rs1,466cr. Considering exceptional income, reported PAT came in at Rs1,779cr, up 26% yoy (41% qoq).
Revenue for the automotive segment was up 9% yoy (5% qoq) at Rs8,446cr. This composed almost entirely of volume growth. At Rs5,61,038 per unit, realization was flat yoy (down 2% qoq). EBIT margin came in at 7.9%, the lowest level since Q1FY18. EBIT margin was supressed due to launch expenses related to Mahindra Marazzo.
The farm equipment segment comprising of tractors, reported revenue of Rs4,028cr, up 2% yoy (down 20% qoq). Tractor volume for Q2FY19 was 4% yoy lower (23% qoq lower). The low volume growth could be partly attributed to delayed festive season. Lower volume in Q2FY19 was due to a drastic decline of 18% yoy in tractor volume in September 2018. This was the first yoy volume decline in at least 10 months. However, realization for the segment exhibited robust growth of 6% yoy (4% qoq) in Q2FY19. EBIT margin contracted 108bps yoy (70bps qoq) to 20.2%. Despite the contraction, we feel that the margin was healthy as there has been a steady shift in segmental margins from 15-16% in FY15 to 20-21% in past 5 quarters. This indicates that the overall trajectory has been upwards and has been led by a healthy product mix.
Conference Call Highlights
Operational weakness during Q2FY19 was due to input cost inflation, introductory pricing on new products such as Marazzo, launch cost of Marazzo and other upcoming products in Q3FY19 and Q4FY19.
The current input cost inflation has been partly offset by price hikes. Input costs will stay high in Q3 and Q4 of FY19 and will ease thereafter.
Management said that tractor volume growth for FY19E will be at the lower end of the 12-14% mark guided earlier.
FY19E volume guidance for the PV industry was lowered from 10% earlier to 7-8%. Company sold more vehicles in rural areas (51% of total volumes) than urban areas (49%).
Management guided that M&HCV business will turn EBITDA-positive in FY19.
M&M plans to launch Alturas G4 (Ssangyong Rexton derivative) on November 24, 2018 and S201 in Q4FY19. It also plans to launch eKUV in middle of next year and Furio range of ICVs in H1CY19.
Mahindra & Mahindra Ltd is currently trading at Rs. 770.90, down by 20.25 points or 2.56% from its previous closing of Rs. 791.15 on the BSE.
The scrip opened at Rs. 796 and has touched a high and low of Rs. 797.85 and Rs. 770.55 respectively. So far 31,12,848 (NSE+BSE) shares were traded on the counter. The stock is currently trading above its 200 DMA.
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