Q2FY24 Review: Mahindra and Mahindra: Q2FY24 below expectations; SUVs stay strong

13 Nov 2023 , 03:42 PM

M&M’s Q2 Ebitda came in 8% below analysts of IIFL Capital Services estimate due to lower revenue in Auto and lower margins overall. Auto segment Ebitda margin being flattish QoQ, despite 14% QoQ rise in volumes was the negative surprise. M&M’s volume growth is being driven mainly by SUV and 3W. Tractors and CVs are relatively muted for both M&M and the respective industries. The SUV segment may continue to drive YoY in the near-term, led by a strong order-book and ramp-up in production. However, overall revenue and earnings growth may come off soon, as all the engines are not firing. Despite the miss in Q2, analysts of IIFL Capital Services upgrade FY24-26 Ebitda by 2- 4% in view of higher SUV volumes. Retain ADD with TP of Rs1645. 

Q2 Ebitda 8% below estimates: 

Rev grew 16% YoY, and came in 2% below est., due to lower ASP in Auto segment. Volume growth is driven by strong pick-up in SUV/3W volumes. Gross margin (GM) came off 30bps QoQ to 24.4% (20bps miss), owing to lower share of Tractors. Ebitda margin contracted 80bps QoQ to 12.6% (80bps miss), hurt by higher employee costs and other expenses. Absolute Ebitda/Ebit were 8%/10% below analysts of IIFL Capital Services  expectations, respectively. Auto Ebit margin expanded 40bps QoQ to 7.9% (60bps miss); FES margin was down 150bps QoQ at 16.0% (100bps miss; 10bp miss, excluding new model launch costs). 

Tractor, LCV industries would see low growth this year: 

The expectation for Tractor industry growth in FY24 has come off from ‘low-tomid single-digit’ to flattish. This is a result of deficient monsoon, especially in South and West India. The LCV industry was flat YoY in H1FY24. Although it is showing some signs of improvement in recent months, analysts of IIFL Capital Services  expect the industry to end the year with 0-5% growth. 

Would SUVs maintain high volumes post festive?: 

M&M has ramped up SUV production from 35k per month at FY23-end to 42k in recent months and plans to ramp it up further to 49k by FY24-end. Mgmt. mentioned that SUV order-book is strong at 286k (equivalent to 7-8 months waiting). Analysts of IIFL Capital Services dealer checks reveal long waiting periods only for XUV700 (top variants), new Scorpio-N and Thar RWD. Other models have short waiting period, or are available off the shelf. Going by the large order-book, M&M should be able to sustain sales of over 40k per month, even post the festive season.