LKP Research is bullish on Mahindra and Mahindra has recommended buy rating on the stock with a target price of Rs 589 in its research report dated June 13, 2020.
LKP Research's research report on Mahindra and Mahindra
In line with 36% decline in the total volumes, the topline fell by 35%. Volumes at the auto segment fell by 47% driven by 56% fall in the SUV segment. FES segment fell by just 2% as tractor demand was still intact in Q4. Margins surprised the street as they came in 70 bps higher yoy at 12.4% on the back of better product mix which was tilted towards high margin tractors, cost saving initiatives and RM tailwinds. According to management, last 7 days of March (due to COVID related lockdown) resulted in a volume loss of ~15,000 vehicles, out of which ~13,000 was on the tractors side. Despite this, the company increased its market share in tractors by 1% to ~40% and in LCVs by 3%. During the quarter, M&M revisited their capital allocation program in which they exited their loss making EV 2W US subsidiary and decided not to increase their investments in the lackluster Ssangyong business. This led to a one time impairment charge of Rs27.8 bn leading to a reported loss of Rs25 bn. However, if we exclude this charge, then the company reported a profit of Rs2.78 bn. This was still a drop of 71% yoy due to a fall in topline and operating profit.
We maintain our BUY rating on the stock with a downward revised target of Rs589 (valuing the standalone business at 11x times FY22E earnings and the subsidiaries at Rs200).
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