Prabhudas Lilladher is bullish on Mahindra and Mahindra
(M&M) and has recommended accumulate rating on the stock with a target of Rs 951 in its February 08, 2013 research report.
“M&M, standalone top-line grew by 28.5% YoY to Rs107.7bn (PLe: Rs107bn), led by 10.8% YoY increase in automotive volumes. The increase in top-line was attributable to richer product mix (XUV 500 accounting for ~13k of volumes) and merger of Mahindra Automobile Distributor. Raw material/sales ratio increased by 150bps YoY (50bps higher than our estimate) on account of higher sales of ‘Maxximo’ and ‘XUV 500’, both being made at MVML and transferred to M&M for sales (reflected in cost of traded goods). However, on account of 10.8% YoY growth in Automotive segment volumes and tight control over other expenses, EBITDA margin decline was restricted to 50bps YoY at 11.2% (PLe: 11.7%). EBITDA grew by 23.1% YoY to Rs12.1bn, lower than our estimate of Rs12.6bn. On account of lower tax rate at 21.1% v/s 28.8% YoY, PAT for the quarter came in higher at Rs8.4bn (PLe: Rs8.1bn).”
“Revenue grew by 26.2% YoY at Rs102.4bn, mainly led by a 37.8% YoY growth in the automotive segment at Rs68.8bn. EBITDA margin of the combined entity improved by 20bps YoY to 13.5% on account of 10.8% volume growth in the automotive segment and better product mix. As a result, EBITDA for the combined entity grew by 26.2% YoY to Rs13.8bn, with Adj. PAT growing by 37.2% at Rs9.1bn (PLe: Rs8.7bn). The main reason for deviation was the lower tax rate at 22.3% v/s 28.5%. Tax rate was lower on account of higher R&D expenses and tax benefits at its Rudrapur as well as Haridwar plant. Despite a 1.5% YoY decline in volumes, the Farm Equipment Segment reported a growth of 3.7% YoY in revenues at Rs34.0bn, with PBIT margin was flat (declining by 16bps YoY) at 15.5%. In our view, given the slowdown in the tractor industry and higher raw material cost, this performance is commendable. The exceptional performance was partially driven by price hikes in the tractor segment.”
“On sum-of-parts valuation, excluding Rs191/share assigned to its subsidiaries, the stock currently trades at 12.3x and 10.7x its standalone FY13E and FY14E EPS, respectively. We expect combined entity i.e. M&M + MVML profit to be higher by ~8% of the standalone profit in FY14E. We value the combined entity at 12.5x FY14E EPS of Rs60. We maintain ‘Accumulate’ on account of ~7.6% potential upside from the current levels,” says Prabhudas Lilladher research report.
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