INSUBCONTINENT EXCLUSIVE:
Reliance Securities has a buy call on Mahindra Mahindra with a target price of Rs 835.
The current market price of Mahindra Mahindra is Rs
659.35.
Time period given by the brokerage is one year when Mahindra Mahindra price can reach the defined target
Investment rationale by the brokerage-New launches to drive growth: Mahindra Mahindra (MM) has delivered a muted performance in 3QFY19
amid challenging environment led by subdued festive season and intensifying competitive intensity
Its (MM+MVML) revenues grew by 12 per cent YoY and 1 per cent QoQ to Rs128.9bn as against our estimates of Rs131.8bn
Volume grew by 11 per cent YoY and 2 per cent QoQ led by 10 per cent YoY and 11 per cent YoY growth in Tractor and Automobile volumes
However, its EBIDTA margin contracted by 151bps YoY and 125bps QoQ to 13.2 per cent as against our estimates of 14 per cent due to
competitive pricing pressure
Its RM/Sales shot up 298bps YoY/156bps QoQ to 69.2 per cent, due to limited ability to pass on cost escalation
From segmental perspective, EBIT margin fell by 130bps YoY to 19.2 per cent and 260bps YoY to 5.8 per cent in FES segment respectively
Its PAT was benefitted from higher non operating income, led by dividend from subsidiaries of Rs2bn and write back of tax provision to the
We believe that incremental volumes of XUV300 and Marazzo would compensate for likely slowdown in tractor segment going forward
It also plans few launches in MPV, LCV and FES segment over next one year
Moreover, MM plans to focus on new technology and EV platform
The Management plans to spend Rs150bn (Capex: Rs100bn Investment: Rs50bn) in next 3 years
Major chunk of the capex would be spent towards product development, technology and RD including BS-VI technology
Focus on core products in UV space would help MM to regain lost market share to some extent, in our view.
Outlook valuation: Looking ahead,
Factoring ongoing slowdown and pricing pressure, we lower our volume and revenue estimates for (MM+MVML) by 0.6 per cent/1.3 per cent and
2.5 per cent/4.8 per cent for FY20E/FY21E respectively
We reduce our EBIDTA margin estimates by 118bps/45bps and cut our EPS estimates by 7.5 per cent/3.6 per cent for FY20E/FY21E
Expecting meaningful improvement in rural demand, strong product pipeline and attractive valuation post stock price correction, we reiterate
EBIDTA at Rs572 and subsidiary at Rs263 post-30 per cent discount to mkt cap.
