Compact UV launches key for M&M growth in CY15: Quant

Mahindra and Mahindra (M&M) beat street expectations on bottomline and topline front while operating performance was in line. Consolidated net profit grew 5.7 percent year-on-year to Rs 967 crore supported by an exceptional gain of Rs 299 crore during October-December quarter. Raghunandhan Nl of Quant Capital, says the house overall has a positive outlook on the stock with a target price of Rs 1400. According to him going forward the compact UV launches hold the key to growth for CY15, which would revive sales growth.He also expects an upturn in the UV cycle from commercial vehicle perspective and  a rebound in tractor volumes. The EBITDA margins over the next two years would go up to 13-14 percent for M&M plus MVML, says Raghunandhan.

Below is the transcript of Raghunandhan Nl’s interview with Ekta Batra & Reema Tendulkar on CNBC-TV18.Ekta: Your take on Mahindra & Mahindra (M&M) and the exceptional gain barring that is the profits still inline with may be what you were expecting?A: We had an estimate of Rs 9,200 crore on the revenue which was a 10 percent decline. Margins we had an estimate of 12.5 percent and profit after tax (PAT) we were expecting at 6.9 billion which was about 31 percent fall. So the reported numbers certainly are higher and after adjusting for the exceptional item the result seemed to be slightly lower than that of estimates. Ekta: What was your expectation in terms of the operating performance and what they have delivered margins of 11.7 percent versus 15 percent year-on-year (YoY) and versus expectations of 11.8 percent?A: Margins are slightly below, margins were under pressure because of three things, one is tractors as a share of overall volumes and revenues has been going down. Second is within the utility vehicles there has been a decline which is leading to some negative operating leverage and third is in the UV segment the discounts have been going up. So, all this three things have been putting pressure on the margins. However, on the stock after the correction the stock has faced going forward we have a positive outlook on the stock. We feel the compact UV launches hold the key to growth in calendar year 2015. So that should act as a big trigger for revival in sales.

Also on the CV volumes we expect them to perk up on the upturn in the UV cycle and tractor volumes we expect them to rebound at least towards mean growth of 8 percent in FY16. Even the recent estimates coming out from weather forecasting agencies rules out the possibilities of El Nino in 2015. EBITDA margins also over next two years we expect them to improve and go towards 13-14 percent for M&M plus Mahindra Vehicle Manufacturers Limited (MVML). Over all we have a positive view on this stock and as per our last report we had target of 1400.Reema: Just for the near term do you expect the stock to rise from hereon on the back of its earnings?A: More importantly I would want to look at the management commentary and one of the things I am watching out for is the time line for the new launches especially in the compact UV.