Buy Mahindra and Mahindra; target Rs 1011: Angel Broking
Brokerage house Angel Broking is bullish on Mahindra and Mahindra (MM) and has recommended 'Buy' rating on the stock with a target price of Rs 1,011 in its research report dated August 14, 2013.
Angel Broking's report on Mahindra and Mahindra (MM)
"Mahindra and Mahindra (MM) reported a mixed performance for 1QFY2014. The operating performance was slightly lower than our expectations due to sequential decline of 3.7 percent in net average realization. However, the bottom-line at Rs 938cr was ahead of our estimates of Rs 850cr, driven by a sharp increase in other income aided by maiden dividend of Rs 70cr from Mahindra Vehicle Manufacturers Ltd (MVML). The overall results were driven by an impressive performance of the farm equipment segment (FES) following strong growth in tractor volumes (up 25.2 percent yoy) even though the automotive segment (AS) posted muted results. We lower our volume assumptions for the AS due to downward revision in utility vehicle (UV) volumes. We now expect UV volumes to decline 6 percent yoy in FY2014 against a growth of 6 percent assumed earlier. The UV volumes of the company have slowed down considerably over the past two months due to rising competition and slowdown in demand. Nevertheless, we maintain our tractor volume estimates (growth of 12 percent yoy in FY2014) and expect the momentum to continue going ahead driven by improved demand on the back of good monsoons. Due to downward revision in AS volumes our revenue and earnings estimates for FY2014/15 are revised downwards by 5.5 percent/5 percent and 7.6 percent/5.3 percent respectively. We retain our positive view on MM given its diversified business which we believe will help the company to face the macroeconomic challenges better than its competitors."
"The top-line registered a 7 percent yoy growth (down 4.4 percent qoq) to Rs 10,023cr led by 6.4 percent yoy (down 0.7 percent qoq) growth in volumes and 0.6 percent yoy growth in net average realization. The volume growth was driven by an extremely strong growth in tractor volumes on anticipation of a normal monsoon. AS volumes however, remained flat as UV sales witnessed a sharp slowdown following an increase in excise duty and also due to increase in competition. The EBITDA margin expanded 100bp yoy (74bp qoq) to 12.8 percent, marginally better than our expectation of 12.5 percent. This was on account of softening of commodity prices, cost control measures, lower share of traded goods following decline in AS volumes and also due to greater share of tractors (37.7 percent as against 25 percent yoy) in the product-mix."
Outlook and valuation: "At Rs 871, MM is trading at 13x FY2015E earnings. We maintain our Buy rating on the stock with an SOTP based target price of Rs 1,011," says Angel Broking research report.
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