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M&M: Auto business drives growth
Feb 12, 2013

M&M announced the third quarter results of financial year 2012-2013 (3QFY13). The company has reported a growth of 25% YoY in sales while net profits grew by 30% YoY (M&M and MVML combined). Here is our analysis of the results.

Performance summary
  • Revenues (M&M and MVML combined) rise by 25% YoY during 3QFY13 largely led by growth in the automotive business.
  • Operating margins fall by 0.3% to 13.5% in 3QFY13; thus operating profits grow by 22% YoY.
  • Bottomline grows by 30% YoY during the quarter led by the fall in tax expenses.
  • For the nine month period, sales and net profits grow by 27.5% YoY and 28% YoY respectively.

Financial performance: M&M and MVML** combined
(Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Sales 82,117 102,426 24.7% 222,624 283,737 27.5%
Expenditure 70,796 88,631 25.2% 192,040 244,795 27.5%
Operating profit (EBDITA) 11,321 13,795 21.9% 30,583 38,942 27.3%
Operating profit margin (%) 13.8% 13.5%   13.7% 13.7%  
Other income 686 758 10.6% 3,720 4,680 25.8%
Depreciation 1,644 2,054 24.9% 4,435 5,899 33.0%
Interest 644 725 12.6% 1,773 2,179 22.9%
Profit before tax 9,718 11,774 21.2% 28,095 35,544 26.5%
Tax 2,659 2,625 -1.3% 7,238 8,829 22.0%
Profit after tax/(loss) 7,059 9,149 29.6% 20,858 26,715 28.1%
Net profit margin (%) 8.6% 8.9%   9.4% 9.4%  
No. of shares (m)       589.3 589.9  
Diluted earnings per share (Rs)*         57.9  
P/E ratio (x)*         15.3  
(*On a trailing 12-month basis)
(**Mahindra Vehicle Manufacturers Ltd)

What has driven performance in 3QFY13?
  • Mahindra and Mahindra (M&M) reported a healthy revenue growth of 25% YoY during the quarter. The clear winner was the 'automotive' division, which grew by an impressive 38% YoY, while the farm equipment division was at the receiving end growing by a mere 5% YoY.

  • As far as the automotive business is concerned, the company managed to retain its leadership in the UV segment as volumes were up 36% YoY. Although the overall auto segment faced considerable headwinds during the quarter, certain segments performed very well; utility vehicles (UVs) being one of them. Since M&M is the market leader in this space, the company benefitted significantly. The farm equipment segment on the other hand was at the receiving end on account of the slowdown in the economy and poor monsoons. Growth in tractor volumes remained flat. The company has a domestic market share of 41.5% in this segment.

    Segmental break-up...
    (Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    Automotive revenues 49,889 68,761 37.8% 134,875 207,890 54.1%
    PBIT 5,030 7,669 52.5% 14,697 22,284 51.6%
    PBIT margin (%) 10.1% 11.2%   10.9% 10.7%  
    Farm Equipment revenues 32,486 34,040 4.8% 89,287 91,357 2.3%
    PBIT 5,085 5,274 3.7% 13,984 14,019 0.2%
    PBIT margin (%) 15.7% 15.5%   15.7% 15.3%  
    Others 248 144 -42.0% 699 465 -33.6%
    Total revenues 82,622 102,945 24.6% 224,861 299,712 33.3%
    *Excluding intersegment revenues

  • M&M's operating margins contracted by 0.3% YoY to 13.5% during 3QFY13 on account of increase in raw material costs and other expenditure (as percentage of sales). In absolute terms, raw material costs increased by 25% YoY. Other expenditure increased by 3% to 11.6% during the quarter.

  • Growth in net profits during the quarter was higher at 30% YoY on account of reduction in tax expenses. For the nine month period, growth in revenues and net profits stood at 27.5% YoY and 28% YoY respectively.

What to expect?
At the current price of Rs 885, the stock is trading at a multiple of 15.3 times its trailing 12-month earnings (M&M and MVML combined). Going forward commodity prices will continue to play a key role in determining profitability for both the industries - auto and farm equipment. As far as the business segments are concerned, while the UV segment has been doing well, the farm equipment segment is expected to grow by around 2% this year. M&M intends to keep up its pace of new launches both in the automotive and farm equipment sector over the next three years as well as managing capacities. Overall, we maintain our 'Buy' view on the stock.

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