Buy Mahindra and Mahindra; target of Rs 600: ICICI Direct

ICICI Direct's research report on Mahindra and Mahindra

Mahindra & Mahindra (M&M) reported a healthy operational performance in Q4FY20. Standalone net sales at Rs 9,144 crore were down 35% YoY (automotive revenues down 46%, tractor revenues down 3%), with automotive segment ASPs at Rs 6.1 lakh/unit and tractors segment ASP at Rs 5.3 lakh/unit being positive surprises. Standalone EBITDA margins at 12.4% were down 100 bps QoQ, with 290 bps gross margin expansion being overshadowed by negative operating leverage. Consequent standalone loss at PAT level of Rs 2,500 crore tracked exceptional charge of Rs 2,800 crore for impairment of investments due to Covid-19 and others.

Outlook

We expect sales, adjusted PAT to grow at 4.3%, 50.1% CAGR, respectively, in FY20P-22E. M&M’s sharpened focus on capital allocation provides us further confidence in our constructive stance on the company. We maintain BUY rating on M&M, valuing it at Rs 600/share on SOTP basis (6.5x FY22E EV/EBITDA for base business; 30% holdco discount to its investments).

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