Buy Mahindra and Mahindra; target of Rs 680: ICICI Direct

ICICI Direct's research report on Mahindra and Mahindra

Mahindra & Mahindra (M&M) reported a relatively decent performance in Q2FY20. Standalone net sales for the quarter were at Rs 11,076 crore (down 14.7% YoY), tracking automotive and tractor segment volume declines of 20.6% YoY & 8.0% YoY, respectively. Encouragingly, standalone EBITDA margins were unchanged QoQ at 12.6% (automotive EBIT margins down 70 bps to 4%, tractor EBIT margins unchanged at 19.3%). Consequent standalone PAT at Rs 1,213 crore (down 26.5% YoY) was aided by a jump in other income (Rs 605 crore received as dividends).

Outlook

We retain our BUY rating on the stock with a revised target price of Rs 680/share wherein we value standalone operations at 6x EV/EBITDA (FY21E basis) and value its investments at 25% holdco discount.