ICICIdirect.com's report on Mahindra and Mahindra
Mahindra & Mahindra (M&M) reported its Q4FY15 numbers with the standalone numbers below estimates on the operating front even as sales came in above estimates
Revenues at ~Rs 9557 crore (~13% YoY decline) came above estimates due to higher than estimated ASP in both automotive & farm equipment segment. Reported EBITDA margins came in at 9.4%. However, after adjustment for a one-off of Rs 68 crore, the adjusted margin was ~10.1%, still below estimates of 10.7% due to higher than estimated other expenses
Consequently, PAT came in at Rs 551 crore vs. estimate of Rs 639 crore due to lower margins, higher interest outgo & lower other income
"The approach and investment nature of the M&M conglomerate led them to unlock deep value (Mahindra CIE being cases in point). This highlights the holistic approach of the management to value creation. It has been one of the worst hit incumbent OEMs in FY15E with problems ranging from loss of market share on the automotive side in H1 to the sudden decline in FES business in H2. However, the ability to sustain profitability at a respectable level amid all the aforesaid pressures demonstrates business and management strength. We believe currently the risk reward between positive/negative is loaded in favour of the former. Core valuations (trading at ~6x< FY17E EBITDA) are alluring. We value the stock on a SOTP basis, valuing the core business at 8x EV/EBITDA FY17E to Rs 826 and subsidiaries at Rs 577 to arrive at an SOTP target price of Rs 1403. We have a BUY recommendation on the stock", says ICICIdirect.com research report.
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