M&M reported Q1FY15 revenue & profit of INR 103 bn & INR 9 bn, which were better than our estimates because of higher realization for both the Automotive & Farm Equipment Segment (FES). Margins declined 47 bps YoY to 12.4% and EBITDA stood at INR 13 bn.

1. 1
M&M
Sensex: 25329 CMP:INR1229 Target : INR 1309
Automobiles
Automotive segment revenue up 3.4%, volumes down 8.4%
Revenue from the automotive segment was up 3.4% at INR 63268
mn (even though volumes declined 8.4% YoY), on the back of
higher realizations because of clubbing of revenue of Mahindra
Trucks & Buses (MTB) and price hike of 1%-1.5%. EBIT is down
11.2% to INR 5036 mn. Tight control over costs helped in arresting
the slide in margins for the company. Sales mix also changed
positively with share of XUV 500 increasing from 8.9% in Q1FY14
to 14.9% in Q1FY15.
FES revenue up 0.9%, volumes flat
FES revenue was up 0.9% YoY at INR 39329 mn led by higher
realization (up 0.9% YoY). EBIT came in at INR 6661 mn & margins
stood stable at 16.9% even in times of subdued monsoon. The
domestic market share stood at 42.2%, which is highest in 10
quarters. The US subsidiary registered a robust growth of 34% &
the market share now stands at 9%. We expect FES volumes &
revenue to grow at a CAGR of 9.3% & 11.2% between FY14-16E.
New launches
The company plans to launch 5 new vehicles over the next 15-18
months, 3 of which will be in Passenger segment (2 in UV1 & 1 in
UV2 segment) & 2 in commercial segment. M&M will also launch
a new tractor & scooter before the start of festive season and 4
new tractor platforms over a period of 3 years. It is also working
along with Ssangyong on 6 engine options of petrol & diesel. M&M
and SSMC would be the primary developer for 3 engines each.
August 11, 2014 RESULTUPDATE-Q1FY15
Capex plans
M&M plans to invest INR 75 bn in capex & INR 25 bn in
subsidiaries & JVs over the next 3 years. Out of INR 75 bn capex,
INR 25 bn would be for capacity expansion & INR 50 bn would be
for product development.
Other highlights
(1) Q1 was a tough quarter for SSMC as (a) Russia, which is its
major market, was down because of geo-political tensions,
(b) Korean Won appreciated by ~10% and (c) wage cost
increased because of the court ruling (that changed the way
overtime was calculated). M&M had earlier cut the volume
guidance for SSMC by 5.9% to 150500 units.
(2) The company expects to reduce loss in MTB by 15% in FY2015E
by cutting overhead costs and improving efficiencies. The
company has also started reaping synergy benefits post merger
with MTB.
Outlook & Valuation
We expect Tractor & UV industry to grow at a CAGR of 9.5% & 13.0%
between FY14-16E. Robust product launch pipeline and positive
outlookforitskeybread&butterbusinessesprovidedecentgrowth
visibility for M&M. Apart from the core business, the company has
huge investments in subsidiaries which themselves are operating
in high growth businesses & geographies. We expect revenue &
profittogrowataCAGRof11.8%&6.6%respectivelybetweenFY14-
16E.WeretainourHOLDrecommendationonthestockwithatarget
price of INR 1309 based on SOTP valuation method.
Shareholding (%) Jun-14
Promoters 25.25
FIIs 46.93
DIIs 15.41
Others 12.41
Relative Price Performance
Key Data
BSE Code 500520
NSE Code M&M
Bloomberg Code MM IN
Reuters Code MAHM.BO
Shares Outstanding (mn) 615.88
Face Value 5
Mcap (INR bn) 756.98
52 Week H/L 1268.75/741.50
2W Avg. Vol, NSE ('000) 1452225
Free Float (INR bn) 565.85
Beta 0.76
(INR mn) FY13 FY14 FY15E FY16E
Net Sales 404412 405085 424754 506504
Growth (%) 26.99 0.17 4.86 19.25
EBIDTAM (%) 11.65 11.65 11.77 12.32
Adj. PAT 33561 37085 34350 42171
Growth (%) 16.71 10.50 -7.37 22.77
Adj. EPS (INR) 56.85 62.82 58.19 71.41
P/E(x) 15.75 16.29 21.12 17.21
EV/EBIDTA 11.58 12.96 14.27 11.23
Net Debt/Equity 0.12 0.05 -0.06 -0.11
RoACE (%) 17.84 17.21 14.04 15.59
RoNW (%) 22.89 22.24 18.00 19.00
M&M reported Q1FY15 revenue & profit of INR 103 bn & INR 9 bn, which were better than our estimates because of higher
realization for both the Automotive & Farm Equipment Segment (FES). Margins declined 47 bps YoY to 12.4% and EBITDA
stood at INR 13 bn. The company will launch 3 vehicles in Passenger segment & 2 in Commercial segment over the next 18
months. We retain our HOLD recommendation on the stock with a target price of INR 1309.
Prashant Biyani
prashant.biyani@spagroupindia.com
Ph. No. 91 33 4011 4800 (Ext. 833)
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M&M Sensex

2. 2
Automobiles
Quarterly Financials
Particulars (INR Mn) Q1FY15 Q1FY14 YoY% Q4FY14 QoQ%
Net Sales 102619 100225 2.39% 110007 -6.72%
Other Income 1895 1642 15.39% 1513 25.27%
Total Income 104514 101868 2.60% 111520 -6.28%
Raw Material Consumed 54473 53373 2.06% 57206 -4.78%
Stock Adjustment 187 1099 -83.00% -1810 NA
Purchase of Finished Goods 19106 18641 2.50% 25919 -26.29%
Employee Expenses 5828 4984 16.95% 6147 -5.18%
Other Expenses 10330 9254 11.63% 13480 -23.37%
Total Expenses 89924 87351 2.95% 100942 -10.91%
EBITDA 12695 12874 -1.40% 9066 40.03%
Depreciation 2480 1806 37.27% 2909 -14.76%
EBIT 10215 11068 -7.71% 6157 65.92%
Interest 586 493 18.73% 843 -30.52%
PBT 11525 12217 -5.67% 6827 68.82%
Tax Expense 2707 2838 -4.62% -2142 -226.36%
PAT 8818 9379 -5.98% 8969 -1.68%
Extra-ordinary Items 0 0 NA 528 NA
APAT 8818 9379 -5.98% 8441 4.47%
Eq Cap (INR Mn) 2952 2952 0.00% 2952 0.00%
FV 5 5 0.00% 5 0.00%
EPS 14.94 15.89 -5.98% 14.30 4.47%
EBITDAM (%) 12.37% 12.85% (47 bps) 8.24% 413 bps
OPM (%) 14.22% 14.48% (27 bps) 9.62% 460 bps
PATM (%) 8.59% 9.36% (77 bps) 7.67% 92 bps

3. 3
Financials
Income Statement
Y/E Mar (INR mn) FY13 FY14 FY15E FY16E
Net Sales 404412 405085 424754 506504
Growth in Sales (%) 26.99 0.17 4.86 19.25
Cost of goods sold 304120 294323 309115 365865
Employees Cost 18665 21637 22512 26845
Other Expenses 32438 39482 40352 48118
Total Expenditure 357286 357873 374739 444120
EBIDTA (without OI) 47126 47212 50015 62384
% Growth 25.30 0.18 5.94 24.73
EBITDA Margin % 11.65 11.65 11.77 12.32
Depreciation/Amortization 7,108 8,633 9,829 12,256
EBIT 40,018 38,579 40,186 50,128
EBIT Margin % 9.90 9.52 9.46 9.90
Interest Expense 1,912 2,592 2,019 1,936
Other Income 6,398 7,737 7,477 7,922
Exceptionals - 528 - -
EBT 44,504 43,724 45,644 56,114
Tax Expenses 10,943 6,111 11,294 13,942
PAT 33,561 37,613 34,350 42,171
APAT 33,561 37,085 34,350 42,171
% Growth 16.71 10.50 -7.37 22.77
APAT Margin % 8.30 9.15 8.09 8.33
Balance Sheet
Y/E Mar (INR mn) FY13 FY14 FY15E FY16E
Sources of funds
Share capital 2952 2952 2952 2953
Reserves & Surplus 143638 163775 187834 219024
Total Networth 146589 166726 190785 221977
Total Debt 34886 37452 35952 34452
Total Liabilities 181475 204178 226737 256428
Application of funds
Net Block 49579 55054 73725 91469
Capital Work-in-Progress 8635 16000 17500 17500
Investments 118335 113799 114632 115465
Total Current Assets 76815 97557 114919 135603
Total Current Liabilities 78342 87662 98645 108362
Net Current Assets -1528 9895 16273 27241
Net Deferred Tax (6149) (8897) (11747) (14747)
Total Assets 181475 204178 226737 256428
Cash Flow
Y/E Mar (INR mn) FY13 FY14 FY15E FY16E
EBT 44504 43724 45644 56114
Less: Other Income/Exceptionals (6398) (7737) (7477) (7922)
Add:Depreciation 7108 8633 9829 12256
Add: Interest paid 1912 2592 2019 1936
Direct taxes paid (9332) (4700) (8444) (10942)
Change in Working Capital (13390) (18373) (15130) (18981)
Cash Flow from operations (a) 24404 24140 26440 32461
Change in Fixed Assets (11403) (14109) (28500) (30000)
Change in CWIP (687) (7365) (1500) 0
Change in Investments (15361) 4536 (833) (833)
Others 2543 2014 9450 4774
Cash Flow from Investing (b) (24908) (14924) (21383) (26059)
Change in Equity 6 0 0 1
Debt Raised/(Repaid) (922) 2566 (1500) (1500)
Dividend paid (8686) (8912) (9298) (10291)
Interest paid (1912) (2592) (2019) (1936)
Others 17948 11412 26068 18800
Cash Flow from Financing (c ) 6435 2474 13252 5074
Net Change in Cash (a+b+c) 5930 11690 18310 11477
Opening Cash 11884 17814 29504 47813
Closing Cash 17814 29504 47813 59290
Key Ratios
Y/E Mar FY13 FY14 FY15E FY16E
Per Share Data (INR)
Adj. EPS 56.85 62.82 58.19 71.41
Growth (%) 16.46 10.50 -7.37 22.73
CEPS 68.89 77.45 74.84 92.17
DPS 13.00 14.00 15.00 16.00
BVPS 248.32 282.43 323.19 376.03
Return Ratios (%)
RoACE 17.84 17.21 14.04 15.59
RoANW 22.89 22.24 18.00 19.00
Liquidity Ratios
Net Debt/Equity 0.12 0.05 (0.06) (0.11)
Interest Coverage Ratio 20.93 14.88 19.91 25.89
Current Ratio 1.21 1.35 1.38 1.49
Efficiency Ratios
Asset Turnover Ratio 2.23 1.98 1.87 1.98
Inventory Days 29 32 34 32
Debtor Days 19 21 20 17
Creditor days 7 5 6 6
Valuation Ratios
P/E(x) 15.8 16.3 21.1 17.2
P/BV (x) 3.61 3.62 3.17 2.72
P/CEPS (x) 13.00 13.21 13.67 11.10
Dividend Yield (%) 1.45 1.37 1.22 1.30
EV/Net Sales (x) 1.35 1.51 1.68 1.38
EV/EBIDTA(x) 11.58 12.96 14.27 11.23
Automobiles

4. 4
Automobiles
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