Accumulate Mahindra and Mahindra; target of Rs 552: Prabhudas Lilladher

Prabhudas Lilladher's research report on Mahindra and Mahindra

MM's 4QFY20 standalone + MVML EBITDA of Rs.12.27bn was ahead of estimates, due to higher-than-expected realization and margin improvement in the farm equipment segment (FES). The EBIT margin in FES rose 146 bps YoY to 17.6%, however, it contracted by 471 bps YoY to 4.1% in the automotive division. The reported PAT was impacted by Rs.36bn provision for impairment in investments in Ssangyong and other international subsidiaries. In tractors, MM gained a market share of 1% to 41.2% in FY20. In our view, M&M is well placed to further increase its market share in the domestic tractor segment, as the industry outlook is positive, given the record output of the Rabi crop and a favourable initial prediction of this year’s monsoon. M&M’s exposure (tractor+ Auto) to rural market at about 65% is one the highest among its peers. These areas are not expected to be as impacted by the on-going COVID-19 disruption as urban ones. The company is trying to tighten its capital allocation policy, and investments will be monitored strictly. The company has already impaired investments at Ssangyong in Korea and has shut down the GenZe EV business in USA.

Outlook

We value the core business at Rs.389/share (15x FY22E core EPS) and subsidiaries at Rs. 163/share, and recommend Accumulate the stock, with a TP of Rs.552.

Mahindra and Mahindra 13062020

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