Buy Mahindra and Mahindra; target of Rs 1156: Prabhudas Lilladher

Prabhudas Lilladher's research report on Mahindra and Mahindra

We are increasing FY19 and FY20 EPS by 2.6-2.7% and target price to Rs1156 (Rs1075 earlier) after attending the unveiling of Mahindra's shark-inspired MPV 'Marazzo' at Nasik plant yesterday. The Marazzo slots perfectly between the Maruti's Ertiga and Toyota's Innova Crysta, with the base variant M2 starting at Rs9.9L and going up to Rs13.9L for the top end M8. Marazzo is Mahindra's first globally engineered product developed between its MANA (Detroit) and MRV (Chennai) facilities and it sets new standards for refinement, ease of use, comfort and a significant improvement to the earlier launches. We factor in monthly sales at 3k units (Ertiga & Innvoa Crysta selling 4-6K units per month) and increase our EBITDA margins by 30bps for FY19/20. Management expects the Marazzo, S201 & Y400 (to be launched later this year) to have a combined monthly run-rate of 8-9K units (capacity of 1.5L/annum) which will provide much needed volume boost and improve profitability . Retain Buy.

Outlook

We increase our EBITDA margins for FY19/20 by 30bps on account of increased operating leverage benefits and prudent pricing actions and maintain 'BUY' with a price target of Rs1,156, based on a core PE of 18x Mar'20E (earlier 17x) and value of subsidiaries at Rs288/share.