The Mahindra & Mahindra Q2 PAT of R989 crore was 20% ahead of estimates ? driven by a combination of higher other income (Rs 369 crore vs Rs 250 crore est) and a lower-than-expected tax rate of 21% (23% est). Ebitda of Rs 1,140 crore was 8% ahead of estimates, driven by lower material costs. Net revenues at Rs 8,930 crore were a tad less than expected.
Farm Equipment had another solid quarter with revenue growth of Rs 3,150 crore and Ebit of R530 crore (17% margin, 16.5% est). Tractor Ebit rose 36% y-o-y and was 3% ahead of estimates. Auto Ebit (MM+MVML) was Rs 620 crore (11.2%), down 23% y-o-y. Balance sheet remains healthy with long-term debt levels of R4,600 crore and overall debt/equity of ~0.31x. Management noted that inventory levels in both tractors and autos have reduced post the festive season. Capex outlook is unchanged ? with Rs 10,000 crore to be invested over three years.
Among key takeaways, M&M?s management is more sanguine about tractor industry volume growth, and noted FY14 growth could be a minimum of ~15% y-o-y; long-term volumes are expected to rise around 8-10%. UV outlook remains challenging, and H2 could also see volumes declining (but less severe than H1).
We assign ?neutral? on the stock. Our new target price is R1,000, driven by increase in our valuation of parts (R252/share vs R199/sh previously) and roll forward to 13x March 2015E EPS for the parent business from Sept?14 previously. Our FY14/15 EPS estimates change by ~7% / ~1%, respectively, reflecting a slight increase in tractor volume growth estimates.
Citi
