Q4FY23 Review: Mahindra & Mahindra: Weakness in LCV, tractors to limit EPS growth

29 May 2023 , 11:13 AM

M&M’s Q4 results were largely in line with estimates. FY23 performance was strong (Ebitda +48% YoY), with high growth in SUV (industry + new models), LCV and Tractors. Mgmt delivered on its promise of exiting loss-making subsidiaries, and kept noncore investments to the minimum. As analysts of IIFL Capital Services look into FY24, two of M&M’s three key segments (LCV, tractors) would struggle for growth. Analysts of IIFL Capital Services forecast 0% volume growth for LCV and 5% growth in Tractors, with a downside risk if monsoon is weak. As a result, they forecast single-digit EPS growth for M&M in FY24.

Q4 results largely in line with estimates: 

Q4 revenue grew 32%/4% YoY/QoQ, and came in 2% above our estimates. Volume growth (YoY) was strong in both Auto and Farm segments. Ebitda margin contracted 60bps QoQ to 12.4% (30bps miss), due to spike in Other expenses. Absolute Ebitda was in line with our estimates. Auto Ebit margin expanded 60bps QoQ to 7.3%. FES (tractor) margin was flattish QoQ at 16.7%.

Mgmt. confident of high growth in SUVs backed by strong orderbook and increase in production: 

Mgmt. mentioned that M&M has an order-book of 292k (>8 months production equivalent). M&M has an SUV production capacity of 39k per month; however, supply constraints have restricted production to 34-35k per month. M&M recently launched its EV model – XUV400. Despite an order-book of 20k, actual deliveries have been low as the company is in the process of refining the product. M&M’splans to launch multiple BEVs in CY2024 are on track.

But Tractors and LCVs may be weak: 

Mgmt guided to a low-singledigit growth for Tractors in FY24. Although reservoir levels are good, weak monsoon may hurt buying sentiment. In the LCV segment, volumes have weakened in recent months; analysts of IIFL Capital Services forecast industry growth at 0% in FY24. With two of M&M’s three key segments staying low in FY24, they expect overall revenue growth to be muted. Mgmt. mentioned that benefit of fall in input cost was fully captured in Q3FY23 results. Heading into Q1FY24, mgmt. sees the possibility of this becoming a headwind. Overall, they expect M&M to generate single digit EPS growth in FY24.