Mahindra & Mahindra (Q4 FY14)

M&M reported a revenue of Rs100bn in Q4 FY14 (including MVML and excluding MTBL).

Jun 03, 2014 06:06 IST India Infoline News Service

CMP Rs1,235, Target Rs1,340, Upside 8.5% 
  • Including MVML and excluding MTBL, M&M reported flat revenues on yoy basis while sequentially it was down 2.2% qoq

  • OPM was at 14% when compared with 14.4% in Q4 FY13 and 15% in Q3 FY14, sequential decline was owing to decline in proportion of high margin tractor segment revenues

  • PAT at Rs9.8bn was higher by 11.8% yoy but was lower by 2.5% on a sequential basis

  • The company merged its truck division with the parent company during Q4 FY14, the entity being merged having accumulated losses brought in tax benefits

  • Downgrade to Market Performer with a 9-month TP of Rs1,340

Result table (M&M + MVML excluding MTBL)
Q4 FY14 Q4 FY13 Yoy growth Q3 FY14 qoq growth
Gross Turnover 110,631 112,407 -1.6% 111,725 -1.0%
Net sales & Op income 100,157 99,830 0.3% 102,416 -2.2%
EBIDTA 14,005 14,351 -2.4% 15,325 -8.6%
PBT 12,558 12,304 2.1% 13,182 -4.7%
PAT 9,756 8,723 11.8% 10,001 -2.5%
OPM 14.0 14.4 -39 bps 15.0 -98 bps
Source: Company, India Infoline Research

Revenue flat yoy but decline 2.2% qoq

M&M reported a revenue of Rs100bn in Q4 FY14 (including MVML and excluding MTBL). This represented a muted growth of 0.3% yoy but a decline of 2.2% qoq. Automotive segment revenue was down 4% yoy owing to decline in utility vehicle volumes of 17.5% yoy in the domestic market. Offsetting impact was seen from 1.3% yoy increase in pick-ups, 1.9% rise in 3-Ws and 7.3% more exports. Tractors segment revenues were higher by 11.7% yoy owing to 11.5% rise in revenues. Sequentially though, while automotive segment revenues were higher by 11.1% yoy, tractor segment revenues plummeted by 22.2%. Higher automotive segment revenues owing to 5.2% yoy higher volumes in domestic market as UV volumes surged 11.4% and pick ups were higher by 4.6% offset by 14.8% decline in 3-Ws and 1.9% fall in exports. Fall in tractor segment was due to 29.4% fall in total volumes.

Segmental performance
Revenue (Rs mn) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Automotive 68,215 71,028 -4.0% 61,375 11.1%
Farm equipments 31,879 28,540 11.7% 40,987 -22.2%
Others 63 262 -76.0% 55 14.8%
Total 100,157 99,830 0.3% 102,416 -2.2%
Source: Company, India Infoline Research

OPM down 39bps yoy and 98bps qoq

For M&M (including MVML and excluding MTBL), operating profit during Q4 FY14 was down 2.4% yoy and 8.6% qoq. OPM was down 39bps yoy and 98bps qoq. Sequential fall was mainly on account of change in product mix whereby contribution of tractor segment reduced from 40% to 32%. EBIT margins for the tractor segment were higher by 110bps yoy but down 53bps qoq.

Impact of MTBL of Q4 and FY14 results

During the quarter, Mahindra Trucks and Buses Ltd (MTBL) was merged with the standalone entity. MTBL is primarily in the business of manufacturing and selling LCVs and M&HCVs. However, with the marked slowdown in commercial vehicle industry over the past couple of years, MTBL has seen difficult times with volumes declining leading to lower utilization levels causing operating deleverage translating into negative operating margins. As full year numbers were added in Q4 FY14, absolute impact of the merger was same on Q4 FY14 and FY14 results. While revenues rose Rs1,988mn because of the merger, operating profit was down Rs3,400mn and PBT fell Rs4,631mn. However, with inclusion of a tax benefit of Rs2,978mn arising from the carry forward unabsorbed past losses (including unabsorbed depreciation) and deferred tax positions of the Trucks business of MTBL impact on PAT was limited to Rs79mn.

Key takeaways from the analyst meet

  • For the tractors segment, M&M has guided for a industry growth of 8% guidance. With regards to the impact of El Nino, management cited that empirically the correlation between monsoons and tractor sales has not been too strong.

  • In the auto sector, M&M expects a growth of 8-10% in FY15.

  • In order to strengthen its leadership position in the UV market, M&M plans to launch three new UV platforms in CY15, two of which would be compact SUVs, while the third would be a CV.

  • The company is developing six new engines along with Ssangyong which include 1.2litre (petrol & diesel), 1.6litre (petrol & diesel), 1.5litre diesel and 1litre petrol.

  • In the CV business, the management indicated that it can break-even at annual volumes of 10,000 M&HCVs and 10,000 units of ICVs.

  • In the two wheeler segment, M&M plans a big thrust into exports during FY15 whereby it expects to do volumes of 50,000 units. In the domestic market launch of a new scooter in Q1 FY15 and full benefit of large marketing spends on Centuro will be seen.

  • M&M has maintained its capital expenditure and investment guidance of Rs7,500mn and Rs2,500mn respectively. Of the capital expenditure of Rs7,500mn, M&M would invest around Rs2,500mn for capacity expansion plans and the balance would be used predominantly for R&D/product development purposes.

Downgrade to Market Performer as we limited upside

Following a strong rally, we see limited upside potential in M&M. While UV sales might remain slow in FY15 until the new models are launched, there exist downside risks to our tractor growth assumption of 8%. FY16 could see a stronger growth as company benefits from the new launches in UV sector and revival in demand in the commercial vehicle space. However, the growth seems to be adequately factored in the valuations.

Valuation summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Revenues 404,412 405,085 446,241 522,105
yoy growth (%) 27.0 0.2 10.2 17.0
Operating profit 47,093 47,212 52,506 64,143
OPM (%) 11.6 11.7 11.8 12.3
Pre-exceptional PAT 32,622 37,056 37,122 45,890
Reported PAT 33,528 37,584 37,122 45,890
yoy growth (%) 16.5 12.1 (1.2) 23.6
EPS (Rs) 54.7 61.6 61.7 76.2
P/E (x) 22.6 20.1 20.0 16.2
Price/Book (x) 5.0 4.4 3.8 3.2
EV/EBITDA (x) 15.9 16.0 14.0 11.0
Debt/Equity (x) 0.2 0.3 0.2 0.2
RoE (%) 24.4 23.6 20.4 21.5
RoCE (%) 26.0 22.4 21.7 23.4
Source: Company, India Infoline Research

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