Hold Mahindra and Mahindra; target of Rs 498: Prabhudas Lilladher

Prabhudas Lilladher's research report on Mahindra and Mahindra

MM+MVML 4QFY20 performance were operationally better with EBITDA at Rs12.3b (PLe Rs9.5b) due to improved gross margins at 35.7% (PLe 33.8%). We believe while MM to see market share gains in tractor segment due to positive farm sentiments, headwinds in the auto segment continue to persist. With improved rural outlook in near to mid term, we increase our S/A EPS by 4.5%/12.1% as we expect contribution of high margin FES segment to remain elevated. This has resulted in ~100bp uprade in FY22 margins to 12.2%.

Outlook

We maintain Hold with revised SoTP based TP of Rs498 (from Rs420). We value core auto business at 12x (v/s 11x to factor in for superio mix and outlook) plus subsidiary value at 50% holdco discount.