Mahindra & Mahindra Ltd.

Transcription

1 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 August 8, 2011 COMPANY RESULTS REPORT REVIEW Mahindra & Mahindra Ltd. Good quarter vindicates our choice as preferred pick BUY Nifty: 5,119; Sensex: 16,990 CMP Target Price Analyst Bhaumik Bhatia Rs668 Rs813 Potential Upside/Downside +22% Key Stock Data Sector Bloomberg / Reuters Relative to Sensex Auto MAHM IN / MM.BO Shares o/s (mn) Market cap. 410,135 Market cap. (US$ mn) 9,122 3-m daily average vol. 144,834 Price Performance 52-week high/low Rs826/550-1m -3m -12m Absolute (%) (7) (6) 3 Rel to Sensex (%) Shareholding Pattern (%) Promoters 24.9 FIIs/NRIs/OCBs/GDR 33.7 MFs/Banks/FIs 22.6 Govt. 0.1 Non Promoter Corporate 10.3 Public & Others Summary Mahindra & Mahindra s (MM) Q1FY12 revenue was marginally ahead of our estimate, led by higher than expected realisation in the automotive segment, while EBITDA margin and PAT were largely in line. Both Automotive and farm equipment segments continue to perform well for MM, led by strong volume traction (new launches like Gio, Maximo goods and passenger variants in Auto and Yuvraj and Arjun MAT in FES and continued strong demand for existing products like Scorpio, Bolero). In addition, market leadership and limited competition has enabled strong pricing power and hence healthy margin, despite macro headwinds. We maintain our EPS estimates for FY12/13 at Rs51/60. Strong performance on both revenue and profitability fronts is commendable and reinforces our faith in the sustainability of the company s growth prospects. MM continues to be our preferred pick, especially in this volatile macro environment led by its dominant position in the rural dependent segments of UVs and tractors, which we believe are the least competitive auto segments. BUY stays with price target of Rs813. Result highlights Revenue marginally below estimates Revenue grew 30%/down 1% YoY/QoQ to Rs67.3 bn (IDBIest of Rs66.3 bn), led by 25% growth/5% decline in volumes and 7%/3% increase in realization at Rs433k (higher share of tractors at 38% vs. 36.3% in Q4FY11 and price hike taken in Auto in May 2011 of 1-1.5% and on Mahindra brand of tractors in June 2011 tractor realisation came in higher at Rs476k, while Auto realisation at Rs405k vs. IDBIest of Rs394k, which led to deviation). It has also taken price hike on Swaraj brand of tractors in July 2011, which will impact Q2FY12 revenue. Both automotive and farm equipment segments have witnessed strong sales performance, with automotive segment growing 34%/(3)% YoY/QoQ to Rs38.6 bn, driven by strong UV sales, Gio, Maximo and recent launch of passenger variants of Gio and Maximo. Realisation was up 9%/4% YoY/QoQ to Rs405k. Farm equipment grew 26%/2% YoY/QoQ to Rs28.6 bn, led by strong performance from both Mahindra and Swaraj divisions. Realisation was up 5%/1% YoY/QoQ to Rs476k. The outlook for both segments remains healthy with good monsoon, continued strong rural demand, India s relatively stable economy and strong product profile. Management has guided for industry growth of ~10% in Auto and 11-13% in tractors. EBITDA margin maintained at healthy level EBITDA margin was in line with estimates at 13.3%, down 170bps/up 60bps, with EBITDA at Rs9 bn (IDBIest of Rs8.9 bn). Higher input costs (RMC/sales at 71.8% vs. 69.6% in Q1FY11 and 70.6% in Q4FY11) put pressure on margin, however price hikes taken in May/June arrested further decline. Employee cost was marginally higher than our estimate (Rs4 bn vs. Rs3.9 bn); while other expenditure was lower than our estimate (Rs6 bn vs. Rs6.7 bn). Employee cost included amortization of Rs265 mn on account of grant of ESOPs, which is of recurring nature. Auto segment PBIT margin was down 150bps/up 20bps to 10.7%, while FES margin was down 110bps/100bps to 16%, largely on commodity inflation, especially steel and rubber. PAT was largely in line with estimates on in line operating performance. 120 Table: Financial snapshot Source: Capitaline M&M Sensex Year Revenue EBITDA EBITDA (%) Adj. PAT EPS (Rs) PE(x) EV/EBITDA (x) RoE (%) RoCE (%) FY09 130,532 10, , FY10 185,296 29, , FY11 232,950 32, , FY12E 293,491 39, , FY13E 342,108 45, ,

2 Commendable performance vindicates faith; reiterate BUY Both Automotive and farm equipment segments continue to perform well for MM, led by strong volume traction (new launches like Gio, Maximo goods and passenger variants in Auto and Yuvraj and Arjun MAT in FES and continued strong demand for existing products like Scorpio, Bolero). In addition, market leadership and limited competition has enabled strong pricing power and hence healthy margin, despite macro headwinds. We maintain our EPS estimates for FY12/13 at Rs51/60. Strong performance on both revenue and profitability fronts is commendable and vindicates our faith in the sustainability of the company s growth prospects. MM continues to be our preferred pick, especially in this volatile macro environment led by its dominant position in the rural dependent segments of UVs and tractors, which we believe are the least competitive auto segments. BUY stays with SOTP valuation of Rs814, with core business contributing Rs677 (12x FY13E EPS) and listed subsidiaries contributing Rs137. Table: Quarterly snapshot Net Sales 67,335 51, ,782 (0.7) Less: Excise 5,359 4, ,657 (5.3) Stock Adjustment (2,583) 694 (472.0) (633) Raw material 50,919 35, , Raw mat cons 48,336 35, , % net sales (2.2) 70.6 (1.1) Employee Expenses 4,034 3, ,261 (5.3) % net sales Other Expenses 5,992 4, ,020 (14.6) % net sales Total Expenditure 58,362 43, ,163 (1.4) EBITDA 8,973 7, , Margin (%) (1.7) Other Income (47.5) Interest (20) (227) (158) (87.4) Depreciation 1, ,171 (6.1) PBT 8,143 7, , Total tax 2,095 1, , PBT (%) PAT 6,049 5, ,065 (0.3) Extraordinary Items Reported PAT 6,049 5, ,065 (0.3) NPM (%) (1.9) EPS (Rs) (0.3) Equity 2,937 2,831 2,936 2

3 Table: Segment results Total Revenue Automotive 38,579 28, ,598 (2.6) Farm Equipment 28,615 22, , Others (28.9) Total 67,399 51, ,883 (0.7) Less: Inter Segment Revenue (11.7) 101 (36.9) Net Revenue 67,335 51, ,782 (0.7) Revenue % contribution Automotive (1.1) Farm Equipment (1.5) Others (0.1) EBIT (Post -exceptional) Automotive 4,139 3, ,182 (1.0) Farm Equipment 4,574 3, ,756 (3.8) Others (65.0) Total 8,734 7, ,997 (2.9) Less: Interest (20) (227) (91.2) (158) (87.4) Other un-allocable expenditure (net) ,075 (43.2) Total Profit Before Tax 8,143 7, , Capital Employed Automotive 29,365 20, , Farm Equipment 12,927 8, , Others (33.0) 296 (8.7) Total 42,563 30, , Post-exceptional EBIT Margin % Automotive (1.5) Farm Equipment (1.1) 17.0 (1.0) Others (10.5) Total (1.4) 13.3 (0.3) 3

4 Conference call highlights MM gained market share in UVs by 450bps to 56.2% and in tractors by 230bps to 43%. Domestic tractor industry grew 14% in Q1 to 133,103 units. Chakan plant (under MVML) produced 17.7k units in Q1FY12 vs. 5.7k units YoY. MM expects share of Chakan in overall production to go up to 25% in FY12. Currently, this plant produces Maximo, Genio and Navistar trucks. Management stated that all new products including W-201 and SMC products will come out of Chakan plant. Xylo and Scorpio are produced at Nashik plant, while Bolero is produced at both Nashik and Zaheerabad plants. The company is looking at new Auto plant in Chennai and new Tractor plant in Zaheerabad, as it operates at near full capacities at its existing units. MVML + MM OPM stood at 14.22% vs % in Q1FY11. Management indicated that raw material prices have stabilized and are unlikely to go up. The company currently has capacity of 20k units for Yuvraj (through outsourced production), while it is selling ~1k units p.m. and expects to clock 1.5k units p.m. by FY12 end. Management indicated that waiting period for its flagship products Scorpio and Bolero, pickups (Gio + Maximo mini trucks sold 12,154 units, up 54% YoY) and Arjun tractor continues, while Thar, Genio and passenger variants of Gio and Maximo (these two products together sold 4,073 units in Q1, with 7.1% market share) have received good initial response. It expects capacity constraints on pickups to end by Q2FY12 end. In FY12, it plans to launch new Global SUV (model W-201) during H2CY11, in addition to 2-3 new launches in the Auto segment and electric vehicle NXR under Mahindra Reva (by FY12 end). MM s D/E as of June 2011 stood at 0.22x. It expects Ssangyong Motor (SMC) to sell ~120k units in CY11 (~81k units in CY10), with revenue growth also pegged at 50% to US$3 bn in CY11. SMC loss of ~Rs3.2 bn in H1CY11 largely pertains to costs related to employee wage hikes and vendor price hikes that were not taken during its bankruptcy period. The company plans to invest US$200 mn in SMC in CY11, which will be funded through reduction in its working capital. Table: Vehicle sales (Units) Scorpio 11,746 9, ,372 (5.1) Non Scorpio 63,717 49, ,922 (3.3) UV's 75,463 59, ,294 (3.6) LCV 2,952 2,978 (0.9) 2, Logan 3,807 1, , Wheelers 14,058 12, ,671 (20.4) Auto Domestic Total 96,280 78, ,056 (5.7) Auto Exports 5,717 3, , Auto Total 101,997 82, ,618 (5.2) Non Logan Auto Total 98,190 80, ,329 (5.9) Domestic Tractors 57,244 47, , Exports Tractors 2,908 2, ,095 (6.0) Total Tractor 60,152 50, , Total Volumes 162, , ,006 (2.9) Volumes excl Logan 158, , ,717 (3.3) Source: Company, SIAM 4

5 Table: Per vehicle (Rs) Realisation - blended 433, , , Realisation - Auto 405, , , Realisation - FES 475, , , Material cost 311, , , Employee cost 25,959 24, ,479 (2.0) Other expenses 38,560 37, ,622 (11.6) EBITDA 57,748 60,616 (4.7) 53, Figure: Quarterly trend in financials 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Sales EBITDA PAT Figure: Segment wise contribution (%) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Source: Company, IDBI Capital Research UV's LCV 3 Wheelers Auto Exports Tractors 5

6 Financial summary (consolidated) Profit & Loss Account Cash Flow Statement Net sales 130, , , , ,108 Growth (%) Operating expenses (120,014) (156,263) (200,605) (253,987) (296,356) EBITDA 10,518 29,033 32,346 39,504 45,752 Growth (%) (17.5) Depreciation (2,915) (3,708) (4,139) (5,008) (6,074) EBIT 7,603 25,325 28,207 34,496 39,677 Interest paid (1,341) (1,569) (709) (1,152) (1,045) Other income 4,044 4,014 6,275 6,919 7,933 Pre-tax profit 10,408 28,678 34,948 40,262 46,566 Tax (1,997) (7,590) (8,575) (10,066) (11,641) Effective tax rate (%) Net profit 8,104 21,088 26,373 30,197 34,924 Adjusted net profit 8,309 20,181 25,198 30,197 34,924 Growth (%) (10.7) Shares o/s (mn nos) Pre-tax profit 10,408 28,678 34,948 40,262 46,566 Depreciation 4,846 2,115 3,040 5,008 6,074 Tax paid (3,318) (4,789) (6,941) (8,871) (11,245) Chg in working capital 9,178 (6,958) 1,690 4,106 3,292 Other operating activities Cash flow from operations (a) 21,115 19,046 32,736 40,505 44,688 Capital expenditure (13,380) (6,999) (9,731) (16,544) (16,544) Chg in investments (10,363) (6,289) (34,159) (13,159) (13,500) Other investing activities Cash flow from investing (b) (29,094) (13,115) (39,004) (29,704) (30,044) Equity raised/(repaid) (132) 7,509 10,325 0 (0) Debt raised/(repaid) 14,657 (11,726) (4,749) (3,188) (1,000) Dividend (incl. tax) (3,303) (3,121) (6,238) (8,026) (8,932) Chg in minorities Other financing activities 3,890 3,094 (4,357) 1,035 - Cash flow from financing (c) 15,112 (4,244) (5,018) (10,179) (9,932) Net chg in cash (a+b+c) 7,132 1,688 (11,286) 622 4,712 Balance Sheet Financial Ratios Net fixed assets 32,143 37,027 43,719 55,255 65,725 Investments 49,559 55,848 90, , ,667 Other non-curr assets 4,117 1,822 1,736 1,593 1,593 Current assets 56,718 65,636 61,813 70,867 83,639 Inventories 10,607 11,888 16,942 21,345 24,881 Sundry Debtors 10,437 12,581 13,547 17,068 19,895 Cash and Bank 15,744 17,432 6,146 6,769 11,480 Loans and advances 11,610 15,094 20,864 22,407 24,105 Total assets 142, , , , ,623 Shareholders' funds 52,314 78, , , ,018 Share capital 2,792 2,910 3,276 3,276 3,276 Reserves & surplus 49,829 75,358 99, , ,742 Total Debt 40,528 28,802 24,053 20,865 19,865 Secured loans 37,161 28,777 23,981 20,793 19,793 Unsecured loans 3, Other liabilities 44,461 33,027 29,333 26,505 25,902 Curr Liab & prov 54,598 59,037 74,664 91, ,350 Current liabilities 45,761 49,045 64,808 79,977 92,704 Provisions 8,837 9,992 9,856 11,165 12,647 Total liabilities 90,222 82,072 94, , ,606 Total equity & liabilities 142, , , , ,623 Book Value (Rs) Adj EPS (Rs) Adj EPS growth (%) (16.8) EBITDA margin (%) Pre-tax margin (%) ROE (%) ROCE (%) Turnover & Leverage ratios (x) Asset turnover (x) Leverage factor (x) Net margin (%) Net Debt/Equity (x) Working Capital & Liquidity ratios Inventory days Receivable days Payable days Valuation PER (x) Price / Book value (x) PCE (x) EV / Net sales (x) EV / EBITDA (x) Dividend Yield (%)

7 Notes Vikrant Oak Head Institutional Equities (91-22) Sonam H. Udasi Head Research (91-22) Dealing (91-22) Key to Ratings Stocks: BUY: Absolute return of 15% and above; ACCUMULATE: 5% to 15%; HOLD: Upto ±5%; REDUCE: -5% to -15%; SELL: -15% and below. IDBI Capital Market Services Ltd. (A wholly owned subsidiary of IDBI Ltd.) Registered Office: 2nd Floor, Mittal Court, C Wing, Nariman Point, Mumbai Phones: (91-22) Fax: (91-22) info@idbicapital.com Disclaimer This document has been prepared by IDBI Capital Market Services Ltd (IDBI Capital) and is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. No person associated with IDBI Capital is obligated to call or initiate contact with you for the purposes of elaborating or following up on the information contained in this document. Recipients may not receive this report at the same time as other recipients. 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