Mahindra & Mahindra: Q2FY22 Results Preview – Revenues to increase 7-8% and PAT to decline 11-12%

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Mahindra & Mahindra, the flagship automotive company of the Mahindra Group, may report a 12 percent drop in profit as the sector endures challenges such as a worldwide shortage of semiconductors and a steep rise in commodity prices, analysts said.

Margins are expected to be impacted by raw material headwinds, which will result in profit after tax declining by 11-12 percent from a year earlier. Revenue is expected to increase by 7-8 percent year-on-year, aided by an about 3 percent increase in both volumes and realisations.

The maker of utility vehicles and tractors is set to declare its results for the quarter ended September on November 9.

The company reported standalone PAT of Rs 162 crore (after exceptional items of Rs 1,150 crore) in the quarter ended September 2020. The company’s standalone revenue was Rs 11,590 crore during the same period last year. The results include those of subsidiary Mahindra Vehicle Manufacturers Ltd.

During the first quarter of this year, Mahindra posted net profit of Rs 856 crore (after exceptional items of Rs 78.5 crore) and revenue of Rs 11,763 crore.

Emkay Research expects revenue to grow 7.5 percent on an annualised basis to Rs 12,464 crore.

“Revenues should grow on higher volumes (3 percent y-o-y) and realisation (5 percent y-o-y),” the brokerage said. “Adverse mix (lower share of tractors) and delays in the pass-through of commodity inflation to result in contraction of EBITDA margins.”

EBITDA (earnings before interest, tax, depreciation and amortisation) is expected at Rs 1,637 crore, a drop of 20.4 percent from Rs 2,057 crore a year earlier, while the EBITDA margin may shrink to 13.1 percent from 17.8 percent.

The brokerage expects a surge of 123 percent in dividend income from Tech Mahindra and M&M Financial Services, resulting in other income of Rs 860 crore for the quarter.

This will result in PAT increasing by 13.7 percent to Rs 1,491 crore from Rs 1,311 crore (before exceptional items) last year and by about 60 percent from Rs 934 crore (before exceptional items) in the preceding quarter.

Sharekhan expects a 7.6 percent y-o-y increase in revenue to Rs 12,471 crore.

The growth will be “aided by 14 percent increase in automotive revenue and flat growth in tractor revenue. Automotive realisation is expected to improve by 4 percent y-o-y, while tractor realisation is expected to improve by 5.5 percent y-o-y,” it said.

The EBITDA margin is expected to decline to 13.3 percent in Q2, driven by an inferior product mix and a rise in raw material prices, according to Sharekhan. It said the company will likely report PAT of Rs 915 crore in the quarter.

Yes Securities expects the company’s revenue to increase 7.7 percent on an annualised basis to Rs 12,604 crore (7.1 percent q-o-q). It estimates a 5 percent y-o-y increase in both volumes and realisations for the quarter.

It said EBITDA may decline 18.5 percent to Rs 1,676 crore.

“We expect EBITDA margins at 13.3 percent to be impacted due to weak mix (tractor mix at 47 percent v/s 51 percent y-o-y) and higher RM,” the brokerage said.

PAT may decline to Rs 942 crore from Rs 1,311 crore last year.

Motilal Oswal expects a 3 percent y-o-y increase in volumes to 190,600 units in the quarter against 185,270 units a year earlier. It said net realisations may increase 3 percent to Rs 6,40,578/unit from Rs 6,21,920/unit last year.

“SUVs and pickups see a good recovery in demand, but were restricted by supply-chain constraints,” it said. This rise in volumes and realisations could result in revenue rising 6 percent to Rs 12,209 crore.

However, the brokerage said higher commodity prices may increase raw material costs as a percentage of sales to 71.5 percent from 66.8 percent in the same quarter last year. This will contract the EBITDA margin to 12.8 percent. PAT is expected at Rs 1,171 crore.

The Mahindra stock declined 1.6 percent to Rs 859.5 at the close on the BSE on November 8. The shares have advanced 40 percent during the past year.