Hold Mahindra and Mahindra: Ventura

Ventura has recommended hold rating on Mahindra and Mahindra in its August 9, 2012 research report. The research firm expects the tractor industry to revive in H2FY13 on the back of better monsoons.

“Mahindra & Mahindra (M&M) posted 39.5% yoy growth in revenues to Rs. 9,247.9 crore led by a strong volume growth in the automotive segments and improved realizations on account of the price increased taken during the quarter and improved product mix. Although, operating profits were higher by 24% yoy to Rs. 1109.4 crore margins were lower by 150 bps and stood at 11.8%. Subsequently, profits were higher by 20% yoy to Rs. 725.6 crore as compared to Rs. 604.9 crore.”

“Automotive segment revenues were higher by 62.8% yoy to Rs. 6,278.65 crore aided by a 25.7% yoy growth in volumes to 1,19,683 units. Volume growth of 32% in the UV segment has been aided by the incremental volumes of XUV 500 which were not present in Q1FY12. M&M currently has a capacity of manufacturing 4,0000 XUV’s per month and will soon ramp it to 5,000 units. M&M has bookings for 20,000 XUV’s and has still not started bookings in about 40 – 50 towns. Thus, management anticipates a robust demand for the XUV 500 over the next 12 months. M&M is going to launch three new vehicles in H2FY13 which included a mini SUV, a electric vehicle and a Ssangyong vehicle.”

“Despite a challenging environment prevailing in the auto sector in the country, M&M continues to post a healthy volume growth aided by its core UV portfolio and the LCV offerings. We expect this momentum to continue led by its strong portfolio and new launches across segments. However, the tractor industry continues to remain under pressure. We expect the tractor industry to revive in H2FY13 on the back of better monsoons. At a CMP of Rs. 744, the stock is trading at 15.5 xs and 13.8x its estimated FY13 and FY14 earnings estimates and we recommend a HOLD on the stock,” says Ventura research report.

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