Buy Mahindra and Mahindra; target of Rs 1075: Prabhudas Lilladher

Prabhudas Lilladher's research report on Mahindra & Mahindra

While M&M's Q1FY19 revenue somewhat missed our estimates, its operating margins were marginally ahead of our expectations. Overall revenue growth for Q1FY19 was ~16% YoY / 2% QoQ at Rs135.2bn v/s our estimate of Rs140bn whereas operating margins stood at 13.8% (up 310bps YoY / 60bps QoQ) v/s PLe of 13.5%. Absolute EBITDA surged 50% YoY (up ~7% QoQ) to Rs18.7bn. With higher non-operating income and lower tax rate, adjusted net profit for the company stood at Rs12.1bn, against PLe of Rs11.4bn. Auto EBIT margins for M&M + MVML came in at 9.4% (up 260bps YoY, down 130bps QoQ) on the back of a favourable product mix. EBIT margins for the FES segment continue the upward trajectory at 20.9% (up 370bps YoY / 140bps QoQ), with tractors forming ~42% of overall Q1FY19 volumes. Revenue for M&M + MVML for Q1FY19 stood at Rs133.6bn, up 22.8% YoY, with operating margins at 15.8%, higher 260bps YoY. Adjusted PAT for the quarter grew 65% YoY to Rs12.4bn.

Outlook

We maintain 'BUY' with a price target of Rs1,075, based on a core PE of 17x Mar'20E and value of subsidiaries at Rs278. The stock currently trades at a core PE of ~14x Mar'20E.