Buy Mahindra and Mahindra; target of Rs 783: Emkay Global Financial

Emkay Global Financial's report on Mahindra and Mahindra

Q2FY21 EBITDA margin expanded 370bps to 17.8%, above estimates of 14.8%, mainly due to better margin in the Tractor segment and cost reduction efforts. EBIT margin for Tractors expanded by 510bps to 24.4%, while Auto margin expanded 70bps to 6.5%. After a 31% decline in H1FY21 volumes, we expect a turnaround in H2FY21/FY22E with growth of 10%/18%, owing to continuation of growth in tractors, pick-up in CV sales cycle and positive response for new Thar UV. Capital allocation and efficiency remain key focus areas. Management has reiterated the stoppage of incremental investments in Ssangyong and has announced the closure of Gipps Aerospace operations.

Outlook

We expect revenues/earnings CAGR at 7%/15% over FY20-23E. Maintain Buy with a TP of Rs783 (Rs718 earlier), based on 17x Core P/E on FY23E (Sep’22E earlier) and value of investments at Rs208/share.