Mahindra & Mahindra - Awaiting product launches - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

M&M's Q1FY21 margin declined to 13.9% (vs 14.7% QoQ) due to commodity cost pressures as well as the impact of the second COVID wave. While the OEM has gained market share in the high-margin tractor segment, it guides for single-digit sales increase (~6%) in FY22 - implying muted growth from here on. The launch of the XUV700 is around the corner and will drive sales growth in the automotive segment in 2HFY22. We reiterate our ADD rating on the stock and set a revised SOTP of INR 855 (target price lower by 5%, at 15x on core business), to factor in the margin cost pressures.

Q1FY22 financials - M&M+MVML: The company reported Q1FY22 revenue at INR 116.6bn (-12% QoQ), affected by the 8% drop in volumes and 5% drop in realisations. EBITDA margin, at 13.9%, contracted 85bps QoQ due to the RM cost pressure. Adj. PAT came in at INR 9.3bn, a decline of 7% QoQ. Tractor segment: Revenue grew 7% QoQ due to a similar growth in volumes. The segment reported an EBIT margin of 20.3% (-170bps QoQ) on higher input costs, which was partially offset by cost management and price increases. Automotive: Volumes were down 20% QoQ due to supply constraints. The EBIT margin came in at 1.7% vs 5% QoQ.

Key takeaways: (1) Auto - product launches: The launch of XUV700 is on track for 2HFY22 and the reveal is expected in the next quarter. M&M's refreshed SUV portfolio including XUV300, Thar, Bolero Neo, etc. has a healthy order book. (2) Tractor growth to moderate: The management has guided for single-digit growth in FY22 due to a demanding base effect, as sales had started accelerating from Q2 last year. The tractor market share has risen to 41.8% (vs 38% QoQ) due to improving supplies. (3) Margin pressure: Margins remain affected by semiconductor shortage, higher freight cost, and commodity price inflation. Although the company has taken three price hikes between Jan-21 and Jun-21, the entire cost inflation has not been passed on.(4) Consolidated performance improves: M&M has reported a consolidated profit in Q1FY22 as write offs due to SsangYong are over and the company is focused on improving the performance of its subsidiaries.

Shares of Mahindra & Mahindra Ltd. was last trading in BSE at Rs. 774.9 as compared to the previous close of Rs. 758.4. The total number of shares traded during the day was 400058 in over 14362 trades.

The stock hit an intraday high of Rs. 782.1 and intraday low of 758.5. The net turnover during the day was Rs. 310213224.

Source : Equity Bulls

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