- M&M reported a 4.3% rise in Q1FY15 profit to Rs. 896.4 crore, driven by operational performance despite a decline in gross revenues. - Key segments like automotive and tractors saw a decline in sales volumes due to a weak demand environment. However, tractor sales saw a 0.9% rise. - Operating margins declined due to higher advertisement spending, while net profit fell 5.98% due to a rise in tax rates. - The company expects a recovery in demand in the coming months due to the monsoon and festival season. It plans to launch new products over the next 15 months.

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Rs
Scrip Code Industry CMP Recommended Action* Target Time Horizon
MAHMAHEQNR Automobile Rs.1308.60 Buy at CMP and add on declines to Rs.1135 –Rs.1171 price band Rs.1391 1 quarter
*Applicable till next results are announced
M&M recently reported its Q1FY15 results. It reported a 4.3 percent growth in Q1FY15 profit at Rs.896.4 crore compared to Rs.859.8 crore in same quarter last year
driven by operational performance. Gross revenues inclusive of other income of the combined entity (MVML) declined to Rs.10,823.2 crore from Rs.10,942.7 crore
during the same period. On a standalone basis operating profit fell to Rs.1269.5 crore compared to Rs.1287.44 crore in the same quarter last year, which was a drop of
1.4%, but QoQ it was a jump of 40%.
On a consolidated basis, M&M reported gross revenue and other income of Rs.19920 cr (vs Rs.19356 cr in Q1FY14) and a PAT of Rs.962 cr (vs (Rs.968 cr in Q1FY14).
Given below are some of the key highlights, which we came across while reviewing the results.
Key highlights of Q1FY15 results:
Quarterly Financials ‐ Standalone:
Particulars Q1FY15 Q1FY14 % Chg Q4FY14 % Chg Remarks
Gross Sales 10597.07 10607.27 ‐0.10% 11503.33 ‐7.9% The decline in sales is due to weak demand environment in both the
automotive and tractor segment.
Excise Duty 501.02 701.04 ‐28.53% 665.44 ‐24.7%
Net Sales 10096.05 9906.23 1.92% 10837.89 ‐6.8% M&M’s Q1FY15 result include impact of MTBL merger and Q4FY14 results
include the full year impact of MTBL’s merger. So the financials are not
strictly comparable both on a YoY and QoQ basis.
Other Operating Income 165.85 116.29 42.62% 162.84 1.8%
Total Income 10261.90 10022.52 2.39% 11000.73 ‐6.7%
Expenditure
Raw Material Consumed 5447.28 5337.26 2.06% 5720.55 ‐4.8% Raw material cost was slightly lower QoQ mainly reflecting lower
commodity cost, product mix (tractors accounted for 40% of volumes vs
37.8% in Q4FY14)
Stock Adjustment 18.69 109.93 ‐83.00% ‐181.03 ‐110.3%
Purchase of Finished Goods 1910.63 1864.11 2.50% 2591.94 ‐26.3%
Employee Expenses 582.81 498.35 16.95% 614.67 ‐5.2% Higher on account of wage hikes effective from Q1FY15.
Loss on Forex Transaction 0.00 0.00 0.00
Other Expenses 1033.02 925.43 11.63% 1348.03 ‐23.4%
Total Expenditure 8992.4 8735.08 2.95% 10094.16 ‐10.9%
Operating Profit 1269.5 1287.44 ‐1.40% 906.57 40.0%
OPM % 12.4% 12.8% ‐40bps 8.2% 420bps Margin declined YoY on the back of higher advertisement spends.
Other Income 189.51 164.23 15.39% 98.49 92.4% Higher other income due to higher dividend received from subsidiaries
RETAIL RESEARCH August 12, 2014Mahindra & Mahindra Ltd (M&M) – Q1FY15 Result Update

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and higher interest earned due to higher cash position.
Interest 58.57 49.33 18.73% 84.30 ‐30.5%
Depreciation 247.95 180.63 37.27% 290.89 ‐14.8% Depreciation cost rose by Rs.32.77 cr due to the enactment of the
Companies Act 2013.
PBT 1152.5 1221.71 ‐5.67% 629.87 83.0%
Tax 270.68 283.80 ‐4.62% ‐214.22 ‐226.4% Higher tax rate due to benefits of Rudrapur plant going off.
Effective Tax Rate % 23.5% 23.2% 1.11% ‐34.0% ‐169.1%
PAT 881.8 937.91 ‐5.98% 844.09 4.5%
Extraordinary Items 0.00 0.00 52.79 ‐100.0%
Profit earned by MHFL 0.00 0.00 0.00
Adjusted Net Profit 881.8 937.91 ‐5.98% 896.88 ‐1.7%
NPM % 8.7% 9.5% 8.3%
EPS 14.9 15.9 ‐6.15% 15.2 ‐1.7%
Equity 295.2 294.67 0.18% 295.16 0.0%
(Source: Company, HDFC sec)
Quarter Financials – Segmental
Particulars Q1FY15 Q1FY14 % Chg Q4FY14 % Chg
Segment Revenue
Automotive 6326.84 6120.54 3.4% 7812.04 ‐19.0%
Farm Equipment 3932.85 3899.52 0.9% 3187.88 23.4%
Others 6.52 7.43 ‐12.2% 6.28 3.8%
Total 10266.2 10027.49 2.4% 11006.2 ‐6.7%
Less: Inter Segment Revenue 4.31 4.97 ‐13.3% 5.47 ‐21.2%
Net Sales 10261.9 10022.52 2.4% 11000.73 ‐6.7%
Segment Results
Automotive 503.58 567.19 ‐11.2% 205.48 145.1%
Farm Equipment 666.1 652.72 2.0% 544.17 22.4%
Others 0.76 2.44 ‐68.9% 2.11 ‐64.0%
Total 1170.4 1222.35 ‐4.2% 751.76 55.7%
Less: Interest 58.57 49.33 18.7% 84.3 ‐30.5%
Other unallocable expenditure net off unallocable income ‐40.59 ‐48.69 ‐16.6% ‐15.2 167.0%
PBT 1152.5 1221.71 ‐5.7% 682.66 68.8%
Capital Employed
Automotive 5323.8 4447.63 19.7% 4750.5 12.1%
Farm Equipment 3102.68 2528.54 22.7% 3250.22 ‐4.5%
Others 4.59 3.95 16.2% 3.76 22.1%
Total Capital Employed 8431.1 6980.12 20.8% 8004.48 5.3%
(Source: Company)
Some observations on Q1FY15 results:

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Volume Break up:
Particulars Q1FY15 Q1FY14 % Chg Q4FY14 % Chg
Auto Sales
‐ Domestic 106063 118213 ‐10.3% 128152 ‐17.2%
‐ Export 6551 4771 37.3% 8335 ‐21.4%
Total Auto Sales 112614 122984 ‐8.4% 136487 ‐17.5%
Tractor Sales
‐ Domestic 71920 71390 0.7% 52512 37.0%
‐ Export 2635 3187 ‐17.3% 2862 ‐7.9%
Total Tractor Sales 74555 74577 0.0% 55374 34.6%
(Source: Company)
Other Highlights:
M&M's auto volumes have de‐grown by 8.4% YoY during the quarter. M&M market share of the UV segment stands at 40.5%.
Management has said that XUV500 numbers sustains at close to 3,000 per month.
In Q1FY15, M&M sold 52180 utility vehicles and continued its leadership position with a market share of 40.5% and it also exported 6551 vehicles.
Mahindra USA (MUSA) volumes have grown 34% YoY in the quarter.
MTBL is a loss making business and the company has witnessed decline in EBITDA margin from 12.4% in Q1FY15 against 12.8% in the same period last year.
Automotive margin is at 8% against 9.3% in Q1FY14 due to MTBL merger impact.
In Q1FY15, the volumes for the Ssangyong Motors were down 2%. This was mainly due to factors like slowdown in Russia, appreciation of Korean Won and increased
employee expenses. Escalating tensions in Russia/Ukraine, which is one of the key markets for Ssangyong Motors could impact sales.
Crop damage due to unseasonal rains in some parts of India in March coupled with deficient monsoon in June led to marginal de growth of 1.2% in the domestic
tractor industry in Q1FY15. In this period, M&M sold 71920 tractors in the domestic market as compared to 71390 tractors sold in the previous year. Market share in
the quarter was 42.2% as against 41.4% in the previous year. They exported 2635 tractors in Q1FY15.
M&M+MVML Quarterly Financials – Q1FY15
Particulars Q1FY15 Q1FY14 % Chg Q4FY14 % Chg
Gross Sales & Other Operating Income 10678.63 10845.11 ‐1.5% 11189.99 ‐4.6%
Excise Duty 771.32 1024.86 ‐24.7% 975.55 ‐20.9%
Total Income from Operations 9907.3 9820.25 0.9% 10214.44 ‐3.0%
Expenditure
Raw Material Consumed 6793.82 6917.12 ‐1.8% 7108.88 ‐4.4%

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Employee Expenses 623.90 551.95 13.0% 653.94 ‐4.6%
Other Expenses 1070.36 998.56 7.2% 1391.20 ‐23.1%
Total Expenditure 8488.1 8467.63 0.2% 9154.02 ‐7.3%
Operating Profit 1419.2 1352.62 4.9% 1060.42 33.8%
OPM % 14.3% 13.8% 50bps 10.4% 390bps
Other Income 144.69 97.58 48.3% 107.25 34.9%
Interest 81.63 83.10 ‐1.8% 107.75 ‐24.2%
Depreciation 280.21 228.55 22.6% 320.02 ‐12.4%
PBT 1202.1 1138.55 5.6% 739.90 62.5%
Tax 305.68 278.77 9.7% ‐174.96 ‐274.7%
Effective Tax Rate % 25.4% 24.5% 90bps ‐23.6%
PAT 896.4 859.78 4.3% 914.86 ‐2.0%
Extraordinary Items 0.00 0.00 52.79 ‐100.0%
Profit earned by MHFL 0.00 0.00 0.00
Net Profit 896.4 859.78 4.3% 967.65 ‐7.4%
Adjusted Net Profit excl EOI 896.4 859.78 4.3% 914.86 ‐2.0%
(Source: Company)
Total income from operations (Net) is Rs. 9,907 crores as against Rs. 9,820 (Incl. MTBL) crores in the corresponding period last year.
Higher contribution of tractors to total volumes and lower discounts in Q1FY15 benefitted improvement in average price per vehicle.
EBIDTA is Rs.1,419 crores as against Rs.1,353 crores in the corresponding period last year, a growth of 4.9% YoY showing impact of company’s cost rationalization
initiatives.
EBITDA Margin is at 14.3% versus 13.8% YoY.
PAT is Rs.896 crores as against Rs.860 crores in the corresponding period last year.
D:E at 0.26; Net D:E is at 0.01.
Q1FY15 Domestic market performance
Segment (Unit Nos) Industry M&M M&M market share
Q1FY15 Actual Growth Q1FY15 Actual Growth CY PY
UV Total 128796 3.9% 52180 ‐8.4% 40.5% 46.0%
Cars (Verito) 101648 24.4% 833 ‐74.4% 0.8% 4.0%
MPV Total 42284 ‐13.7% 4643 ‐38.8% 11.0% 15.5%
LCV < 2T 30900 ‐30.2% 3879 ‐54.7% 12.6% 19.4%
2T>LCV<3.5T 39667 ‐14.3% 30129 12.1% 76.0% 58.0%

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3W Total 121319 11.6% 11808 ‐4.5% 9.7% 11.4%
AD (Dom.) Total 464614 2.4% 103472 ‐10.5% 22.3% 25.5%
LCV > 3.5T Total 20203 ‐7.6% 1821 ‐14.8% 9.0% 9.8%
MHCV (Goods) 31804 6.1% 748 61.9% 2.4% 1.5%
AS (Dom.) Total 516621 2.2% 106041 ‐10.3% 20.5% 23.4%
Non participating segments
MHCV passenger 9886 ‐0.214
MCV Goods 8725 ‐0.348
Cars (Excl. Super compact) 342594 ‐0.029
AS (Dom.) Total 877826 ‐0.007 106041 ‐10.3% 12.1% 13.4%
Source: (Company)
Guidance:
Starting Q2F15, M&M will introduce 5 new products and variants over next 15 months. Of these, two will be in the personal segment and three in the commercial
segment.
Management has said during conference call that the HCV industry has shown signs of revival over past three months and consequently, M&M HCV volumes have
shown positive movement.
With the Agri economy reeling under concerns of a deficient monsoon and El Nino impact, tractor industry volume degrew by 1.2% YoY during the quarter. M&M
volumes were flat at 0.7% over the quarter. Market share of M&M in the quarter stands at 42.2%.
M&M expects the tractor industry to end this fiscal with a 5% YoY volume growth and plans to launch a completely new tractor platform very soon. Management is
expecting a good response for this product.
Management blames the challenging market environment for the subdued monthly sales performance. However they feel that, with the monsoon now setting in
across the country as well as the ensuing festival season, M&M expects positive sentiments in the coming months resulting in enhanced demand for their products.
M&M’s utility vehicle space has seen considerable fall in market share comparing with its previous year’s figures and the reason for this is due to the lack of offerings
in this space. They had only Quanto in the compact SUV space where as Ford’s Ecosport and Renault’s Duster have grown significantly over the same period.
Management has said that they will be launching two new platforms in the second half of FY15 and also in FY16 in the compact SUV segment and thereby expects to
reclaim lost market share.
Management has maintained their volume outlook for Ssangyong Motors in CY14 at 150,000 units.
Management expects the auto industry to grow between 8‐10% mainly on the back of sustained growth in the 2 wheeler segment.

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M&M is expecting their market share in the HCV segment to increase further from the current 2.4%.
Management in the conference call has said that going forward it is expecting the overall share of UV segment in the PV space to increase to around 25% and this will
ensure that UV segment outperforms passenger cars segment.
Concerns
Too many businesses:
M&M group has diversified businesses and this requires strong management system. The Group at the end of the year comprised of 118 Subsidiaries, 7 Joint Ventures
and 14 Associates. It becomes difficult for the management to keep abreast with the development in each of the subsidiaries/JVs/Associates.
Intense competition in LCV & UV Segments:
M&M faces competition in the LCV segment from Tata Motors and LCVs manufactured through Ashok Leyland‐Nissan JV. While M&M plans to counter competition
with its Gio and Maxximo models, competition in the segment could be higher than expected. Competition in the UV segment will likely remain high driven by recent
launches.
Elevated levels of commodity prices (steel, rubber, crude oil, etc) could lead to lower profitability.
Slowdown in tractors industry (due to failure of monsoon or fall in growth of rural incomes) could affect fortunes of M&M.
Rising price of diesel could impact sale of diesel vehicles. Almost the entire sales of M&M is of diesel vehicles.
Sharp rise in capex in FY15 could lower earnings growth on a rise in depreciation costs.
Conclusion & Recommendation
Even in a period of weak demand environment, M&M delivered results which were better than street expectations. On a standalone basis margins improved on QoQ
basis and PAT was up on the back of higher finance income. Even though M&M’s volume declined both on a YoY and QoQ basis to 187,376 units in the quarter, the
average price realization improved due to higher contribution of tractors to total volumes from 37.8% in Q1FY14 to 40% and also due to lower discounts in Q1FY15.
UV sales, is the company’s mainstay, and it continued to lose market share, with sales skidding month‐on‐month and this was due to lack of new launches in the
compact SUV segment where it has seen increased competition from Ford’s Ecosport and Renault’s Duster. With the expected launch of new products in the H2FY15 and
in FY16 we could see improvement in UV volumes. It is planning to launch a new tractor before festive season.
With no major launches in the current quarter in the utility segment and with the continued uncertainty regarding monsoons, we are maintaining our FY15 estimates
(except for topline which is revised downwards) and introducing FY16 estimates. M&M apart from having multiple exposures to the old and new economy through its
subsidiaries and associates, could also be a key beneficiary of defence sector opening up. At the CMP of Rs.1308.60, the stock is trading at 17.8x FY16E EPS of Rs.73.6.

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In our Q4FY14 result update dated June 09, 2014, we had stated that investors could buy the stock at the then CMP(Rs.1299.65) and can be added on dips between
Rs.1,064‐1,097 price band for a target of Rs.1,330. Post the issue of the report, the stock made a low of Rs.1164 on July 11, 2014 and a high of Rs.1324 on Aug 11, 2014.
We think that the stock could be bought at the CMP and added on dips to Rs.1135‐1171 (15.5x‐16.0x FY16E SA EPS ‐ considering impact of consolidated numbers) for
a target of Rs.1391 (19.0x FY16E SA EPS ‐ considering impact of consolidated numbers) over the next quarter.
Financial Estimates ‐ Standalone:
Particulars (Rs in Crs) FY12 (OE)* FY12 (A)* FY13 (A)* FY14 (A)* FY15 (E)* FY15 (RE*) FY16 (E)*
Operating income 25899.7 31853.5 40441.2 39963.4 45154.6 42864.0 49698.5
PBIDT 3859.1 3770.7 4709.3 4721.2 5689.5 5689.5 6187.6
PBIDTM (%) 14.9% 11.8% 11.6% 11.8% 12.6% 13.3% 12.5%
Profit after Tax 2797.2 2878.9 3352.8 3758.4 3928.5 3928.5 4346.0
PATM (%) 10.8% 9.0% 8.3% 9.4% 8.7% 9.2% 8.7%
EPS 47.0 48.9 56.8 63.7 66.5 66.5 73.6
P/E (x) 27.9 26.8 23.0 20.6 19.7 19.7 17.8
*‐ Quick Estimates, A ‐ Actuals (Source: Annual Report, HDFC sec Estimates)
Analyst: Rethish Varma.S Email ID:Rethish.Varma@hdfcsec.com
RETAIL RESEARCH Tel: (022) 3075 3400 Fax: (022) 2496 5066 Corporate Office
HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022)
2496 5066 Website: www.hdfcsec.com Email: hdfcsecretailresearch@hdfcsec.com
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