Accumulate M&M; target of Rs 1110: Dolat Capital

Dolat Capital's research report on Mahindra and Mahindra (M&M)

"M&M reported top-line revenue at Rs 104.8bn, up 12 percent YoY led by 6 percent YoY volume growth. The auto sector volumes grew 11 percent YoY, while tractor sales were down 4 percent YoY. Its utility vehicle market share is down from 55.6 percent in FY12 to 47.7 percent in FY13. The company’s operating margins improved 90bps QoQ to 12.1 percent. EBIDTA for the quarter was Rs 12.7bn, up 31 percent YoY. This was mainly led by lower raw material expense. The company reported its PAT at Rs 8.9bn, up 2 percent YoY. EPS for the quarter was Rs 15.1."

"View and valuation: We remain positive on M&M as it continues to post robust growth. The newly launched Quanto is also gaining momentum. Macro headwinds may affect the demand in the tractor segment. However, the management mentioned that they are seeing positive sentiments and the industry may grow beyond the guidance of 6-8 percent in FY14. Currently, we estimate tractor sales to grow at a CAGR of ~7 percent during FY13-15."

"The management mentioned that although they are not looking at any new brand launch in FY14 in the auto segment, the refreshes will continue to happen. Also, three new brands will be launched in FY15. A new brand will be launched in tractor segment in FY14. We expect its revenue to grow at a CAGR of ~12 percent during FY13-15 and EBIDTA to grow at ~14 percent. The stock is currently trading at a P/E of 14.1x FY15 standalone earnings. The subsidiaries add almost Rs 180/- to the stock. We raise our target price from Rs 1050/- to Rs 1110/-. We recommend Accumulate," says Dolat Capital research report.

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