Mahindra & Mahindra (MM IN) Robust quarter, largely in line

INSTITUTIONAL EQUITY RESEARCH Mahindra & Mahindra (MM IN) Robust quarter, largely in line INDIA AUTOMOBILES Quarterly Update Top takeaways from Q1FY19 Revenue at Rs 134bn was largely in line EBITDA at Rs 21.1bn was 1% ahead of our estimate (c.5% ahead of consensus) EBITDA margin at 15.8% vs. our estimate of 15.5% PAT at Rs 12.5bn was 4% ahead Auto EBIT margin at 9.4% (PC estimate 9.8%), Tractor at 20.9% (PC estimate 19.7%) Key highlights: Robust margin performance with strong product mix, efficiency improvement helping improve margin. It will benefit from robust demand in the tractorsegment and three new launches which would provide much needed relief to its automotive segment. Conference call takeaways Tractor industry outlook increased to 12 14% vs. 8 12%. Q2 will be flattish as festive season has shifted, Q2 & Q3 combined should see c.13% growth RM price was higher than expected partly offset by price hike of 1.5% in auto and 1.3% in tractors during the quarter and partly by cost cutting measures New MPV Marazzo (U321) launch planned by end Sep 18. S201& G4 Rexton will be launched around festive season, 1 before and another after Diwali Apart from 3 launches this year no new platform will be launched in 2019. Other new platforms will be launched starting 2020 All vehicles will have petrol variants by 2020, as diesel might face regulatory headwinds in the future Tyres to be the biggest challenge for new axle load norms as the required size is not available in India. In normal course of time it takes 12 18 months to develop new tyres. Tractor inventory below the industry, auto inventory in line with industry R&D cost for new petrol variants will be less as most of the facilities are already available Outlook and valuation: M&M will benefit from robust demand in the tractor segment and three new launches which would provide much needed relief to its automotive segment. We raise our FY20 EBITDA/PAT estimate by 9/12% led by better tractor industry outlook and margin performance. Maintain BUY with a revised target of Rs 1050 (Rs 960 earlier). 8 August 2018 BUY (Maintain) CMP RS 926 /TARGET RS 1030 (13%) COMPANY DATA O/S SHARES (MN) : 1243 MARKET CAP (RSBN) : 1133 MARKET CAP (USDBN) : 16.5 52 WK HI/LO (RS) : 943 / 613 LIQUIDITY 3M (USDMN) : 32 PAR VALUE (RS) : 5 SHARE HOLDING PATTERN, % Jun 18 Mar 18 Dec 17 PROMOTERS : 21.7 21.7 21.6 FII / NRI : 34.3 33.9 33.9 FI / MF : 21.2 21.2 20.3 NON PRO : 9.2 9.2 9.9 PUBLIC & OTHERS : 21.7 21.7 21.6 Key Financials Rsmn FY18 FY19E FY20E Net Sales 4,75,774 5,53,702 6,26,304 EBIDTA 70,434 84,163 98,330 Net Profit 41,896 49,461 57,682 EPS, Rs 35.3 41.7 48.6 PER, x 26.2 22.2 19.1 EV/EBIDTA, x 15.6 13.1 11.1 PBV, x 3.6 3.3 2.9 ROE, % 13.8 14.7 15.3 Debt/Equity (%) 9.5 8.5 7.6 CHANGE IN ESTIMATES Revised Est. % Revision Rsmn FY19E FY20E FY19E FY20E Revenue 5,53,702 6,26,304 3.7% 5.6% EBITDA 84,163 98,330 6.9% 8.7% Core PAT 49,461 57,682 11.1% 12.4% EPS (Rs) 41.7 48.6 11.1% 12.5% Nitesh Sharma, CFA (+ 9122 6246 4126) nsharma@phillipcapital.in Vipul Agrawal(+ 9122 6246 4127) vagrawal@phillipcapital.in (RsMn) Q1FY19 Q1FY18 yoy growth % Q4FY18 qoq growth % vs. expectations % Comments Net sales 1,33,577 1,06,121 26% 1,31,888 1% 1% EBITDA (Adj.) 21,101 12,368 71% 19,950 6% 1% EBITDA Margin 15.8% 11.7% 414 bps 15.1% 67 bps 31 bps Net Profit (Adj) 12,489 8,419 48% 11,386 10% 4% Net Margin 9.3% 7.9% 142 bps 8.6% 72 bps 45 bps Segmental Analysis Auto Revenues 80,326 65,386 23% 91,049 28% Auto EBIT 7,575 4,580 65% 9,713 53% Auto Margins 9.4% 7.0% 243 bps 10.7% 366 bps FES Revenues 50,069 42,861 17% 37,161 15% FES EBIT 10,454 7,420 41% 7,234 3% FES Margins 20.9% 17.3% 357 bps 19.5% 215 bps Page 1 PHILLIPCAPITAL INDIA RESEARCH

Financials Income Statement Y/E Mar, Rsmn FY17 FY18 FY19e FY20e Net sales 4,18,954 4,75,774 5,53,702 6,26,304 Growth, % 8 14 16 13 Other Operating income 0 0 0 0 Total income 4,18,954 4,75,774 5,53,702 6,26,304 Raw material expenses 2,85,265 3,16,280 3,70,981 4,18,058 Employee expenses 28,729 31,773 34,330 38,831 Other Operating expenses 48,404 57,286 64,229 71,086 EBITDA (Core) 56,556 70,434 84,163 98,330 Growth, % 8.8 24.5 19.5 16.8 Margin, % 13.5 14.8 15.2 15.7 Depreciation 14,721 16,254 16,767 18,417 EBIT 41,836 54,181 67,396 79,912 Growth, % 5.9 29.5 24.4 18.6 Margin, % 10.0 11.4 12.2 12.8 Other Non Operating Income 12,035 9,517 8,661 8,401 Pre tax profit 53,597 61,816 73,823 86,093 Tax provided 14,708 19,920 24,361 28,411 Profit after tax 38,889 41,896 49,461 57,682 Others (Minorities, Associates) 0 0 0 0 Net Profit 38,889 41,896 49,461 57,682 Growth, % 12.0 13.6 18.1 16.6 Net Profit (adjusted) 36,877 41,896 49,461 57,682 Unadj. shares (m) 1,187 1,187 1,187 1,187 Wtdavg shares (m) 1,187 1,187 1,187 1,187 Balance Sheet Y/E Mar, Rsmn FY17 FY18 FY19e FY20e Cash & bank 17,328 28,937 28,250 33,511 Debtors 28,554 31,730 36,927 41,769 Inventory 31,861 27,017 31,442 35,565 Loans & advances 0 0 0 0 Total current assets 96,200 1,25,370 1,38,073 1,56,444 Investments 2,12,586 2,38,917 2,48,473 2,58,412 Gross fixed assets 2,05,261 2,07,149 2,57,946 3,08,743 Less: Depreciation 91,811 1,08,065 1,24,832 1,43,249 Net fixed assets 1,13,449 1,09,881 1,43,912 1,76,292 Total assets 4,22,235 4,74,168 5,30,458 5,91,148 Current liabilities 97,753 1,26,547 1,47,275 1,66,586 Non current liabilities 60,382 44,680 45,620 46,621 Total liabilities 1,58,135 1,71,227 1,92,895 2,13,207 Paid up capital 2,968 5,950 5,950 5,950 Reserves & surplus 2,61,132 2,96,991 3,31,614 3,71,991 Shareholders equity 2,64,101 3,02,940 3,37,563 3,77,941 Total equity & liabilities 4,22,235 4,74,168 5,30,458 5,91,148 Source: Company, PhillipCapital India Research Estimates Cash Flow Y/E Mar, Rsmn FY17 FY18 FY19e FY20e Pre tax profit 51,585 61,816 73,823 86,093 Depreciation 14,721 16,254 16,767 18,417 Chg in working capital 17,718 11,234 7,337 6,201 Total tax paid 14,708 19,920 24,361 28,411 Other operating activities 7,737 7,635 6,426 6,181 Cash flow from operating activities 26,143 61,749 67,138 76,120 Capital expenditure 12,964 12,686 50,797 50,797 Other investing activities 31,892 22,494 44 537 Cash flow from investing activities 44,856 35,180 50,753 51,334 Free cash flow 18,713 26,570 16,385 24,786 Debt raised/(repaid) 13,249 10,022 0 0 Other financing activities 917 4,938 17,073 19,525 Cash flow from financing activities 12,332 14,960 17,073 19,525 Net chg in cash 6,381 11,610 687 5,261 Valuation Ratios FY17 FY18 FY19e FY20e Per Share data EPS (INR) 31.1 35.3 41.7 48.6 Growth, % 11.8 13.6 18.1 16.6 Book NAV/share (INR) 222.4 255.2 284.3 318.3 FDEPS (INR) 31.1 35.3 41.7 48.6 CEPS (INR) 41.8 49.0 55.8 64.1 CFPS (INR) 20.2 50.5 55.2 62.8 DPS (INR) (9.8) (10.6) (12.5) (14.6) Return ratios Return on assets (%) 9.6 9.3 9.8 10.3 Return on equity (%) 14.0 13.8 14.7 15.3 Return on capital employed (%) 12.9 12.5 13.5 14.3 Turnover ratios Asset turnover (x) 5.7 6.4 7.0 5.9 Sales/Total assets (x) 1.0 1.1 1.1 1.1 Sales/Net FA (x) 3.7 4.3 4.4 3.9 Working capital/sales (x) (0.0) (0.1) (0.1) (0.1) Fixed capital/sales (x) 0.5 0.4 0.5 0.5 Receivable days 24.9 24.3 24.3 24.3 Inventory days 27.8 20.7 20.7 20.7 Payable days 78.8 77.5 77.8 78.3 Working capital days (16.4) (23.1) (24.7) (25.4) Liquidity ratios Current ratio (x) 1.0 1.0 0.9 0.9 Quick ratio (x) 0.7 0.8 0.7 0.7 Interest cover (x) 18.3 28.8 30.2 36.0 Total debt/equity (%) 14.6 9.5 8.5 7.6 Net debt/equity (%) 8.1 (0.1) 0.1 (1.3) Valuation PER (x) 29.8 26.2 22.2 19.1 PEG (x) y o y growth 2.5 1.9 1.2 1.1 Price/Book (x) 4.2 3.6 3.3 2.9 Yield (%) (1.1) (1.1) EV/Net sales (x) 2.7 2.3 2.0 1.7 EV/EBITDA (x) 19.8 15.6 13.1 11.1 EV/EBIT (x) 26.8 20.3 16.3 13.7 Page 2 PHILLIPCAPITAL INDIA RESEARCH

Stock Price, Price Target and Rating History 1000 950 900 B (TP 960) 850 800 750 700 650 B (TP 775) B (TP 725) N (TP 660) N (TP 675) N (TP 700) N (TP 725) N (TP 700) N (TP 800) N (TP 675) N (TP 755) N (TP 775) B (TP 800) 600 550 500 J 15 A 15 S 15 N 15 D 15 F 16 M 16 M 16 J 16 J 16 S 16 O 16 D 16 J 17 M 17 A 17 J 17 J 17 S 17 O 17N 17 J 18 F 18 A 18 M 18 J 18 Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition BUY >= +15% Target price is equal to or more than 15% of current market price NEUTRAL 15% > to < +15% Target price is less than +15% but more than 15% SELL <= 15% Target price is less than or equal to 15%. Page 3 PHILLIPCAPITAL INDIA RESEARCH

RESEARCH Automobiles Nitesh Sharma, CFA Vipul Agrawal Agro Chemicals Varun Vijayan Banking, NBFCs Manish Agarwalla Pradeep Agrawal, Sujal Kumar Consumer Preeyam Tolia, Vishal Gutka MANAGEMENT Vineet Bhatnagar (Managing Director) Kinshuk Bharti Tiwari (Head Institutional Equity) Jignesh Shah (Head Equity Derivatives) Pharma & Specialty Chem Surya Patra Mehul Sheth, Rishita Raja Retail & Real Estate Vishal Gutka Dhaval Somaiya Strategy Neeraj Chadawar Telecom REGIONAL MEMBER COMPANIES INDIA PhillipCapital (India) Private Limited www.phillipcapital.in SINGAPORE Phillip Securities Pte Ltd www.phillip.com.sg JAPAN Phillip Securities Japan, Ltd www.phillip.co.jp THAILAND Phillip Securities (Thailand) Public Co. Ltd. www.phillip.co.th UNITED STATES Phillip Futures Inc. Cement Vaibhav Agarwal Engineering, Capital Goods Jonas Bhutta Vikram Rawat Economics Anjali Verma Raag Haria IT Services Vibhor Singhal Shyamal Dhruve Infrastructure Vibhor Singhal Deepika Bhandari Logistics, Transportation & Midcap Vikram Suryavanshi Media Vishal Gutka Midcaps Deepak Agarwal Akshay Mokashe Technicals Subodh Gupta, CMT Production Manager Ganesh Deorukhkar Editor Roshan Sony Sr. Manager Equities Support Rosie Ferns SALES & DISTRIBUTION Kishor Binwal Bhavin Shah Ashka Gulati Archan Vyas Sales Trader Dilesh Doshi Execution Mayur Shah CORPORATE COMMUNICATIONS Zarine Damania MALAYSIA Phillip Capital Management Sdn Bhd www.poems.com.my INDONESIA PT Phillip Securities Indonesia www.phillip.co.id FRANCE King & Shaxson Capital Ltd. www.kingandshaxson.com AUSTRALIA PhillipCapital Australia www.phillipcapital.com.au HONG KONG Phillip Securities (HK) Ltd www.phillip.com.hk CHINA Phillip Financial Advisory (Shanghai) Co. Ltd. www.phillip.com.cn UNITED KINGDOM King & Shaxson Ltd. www.kingandshaxson.com SRI LANKA Asha Phillip Securities Limited www.ashaphillip.net/home.htm Page 4 PHILLIPCAPITAL INDIA RESEARCH

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