X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
M&M: Hurt by falling volumes - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

M&M: Hurt by falling volumes
Feb 19, 2015

Mahindra & Mahindra (M&M) announced the third quarter results of financial year 2014-2015 (3QFY15). The company has reported a decline of 10% YoY in sales, while net profits grew by 6% YoY (M&M and MVML combined). Here is our analysis of the results.

Performance summary
  • Revenues (M&M and MVML combined) decline by 10% YoY during 3QFY15 as revenues from both the automotive and farm equipment segments remain subdued.
  • Operating margins contract by 2.3% to 11.7% in 3QFY15; thus the operating profits fall by 25% YoY.
  • Despite the fall in operating profits, net profits grow by 6% YoY on account of an extraordinary income of Rs 2.9 bn during the quarter.

Financial performance: M&M and MVML** combined
(Rs m) 3QFY14  3QFY15  Change 9mFY14  9mFY15  Change
Sales 102,549 92,603 -9.7% 287,693 283,454 -1.5%
Expenditure 88,194 81,806 -7.2% 248,035 247,461 -0.2%
Operatingprofit (EBDITA) 14,355 10,797 -24.8% 39,658 35,993 -9.2%
Operatingprofit margin (%) 14.0% 11.7%   13.8% 12.7%  
Otherincome 923 897 -2.8% 5,508 7,250 31.6%
Depreciation 2,444 2,638 7.9% 7,181 8,223 14.5%
Interest 949 663 -30.1% 2,744 2,206 -19.6%
Profitbefore tax 11,885 8,393 -29.4% 35,241 32,814 -6.9%
Exceptionalitem - 2,993   - 2,993  
Tax 2,740 1,719 -37.3% 7,925 7,436 -6.2%
Profitafter tax/(loss) 9,145 9,667 5.7% 27,316 28,372 3.9%
Netprofit margin (%) 8.9% 10.4%   9.5% 10.0%  
No. ofshares (m)       589.3 589.9  
Dilutedearnings per share (Rs)*         58.5  
P/Eratio (x)*         21.1  
(*On a trailing 12-month basis and excluding extraordinary items)
(**Mahindra Vehicle Manufacturers Ltd)

What has driven performance in 3QFY15?
  • Mahindra and Mahindra (M&M) reported decline of 10% YoY in revenues during the quarter. This was largely due to the tepid performance of the both the automotive and farm equipment divisions. While revenues of the former were down 6% YoY, the latter saw revenues fall by 15% YoY.

  • As far as the automotive business is concerned, volumes de-grew for the company largely on account of the fall in volumes of cars, vans as well as utility vehicles. The fall in the latter was attributed to the increasing preference for petrol vehicles as opposed to diesel as the price differential between the two fuels narrowed down. As utility vehicles in the industry so far are predominantly diesel variants, M&M also faced the brunt. However, the management expects the UV industry to grow faster than cars in FY16 as more product launches and petrol options emerge in the UV segment. The company had a market share of 37.4% in the utility vehicles space.

  • The farm equipment segment also put up a subdued show with revenues falling by 15% YoY. The tractor industry as a whole witnessed a drop in volumes as farm incomes reduced. The latter was attributed to decline in mandi prices and kharif crop output and a fall in the rabi sowing. Poor monsoons further played spoilsport. For M&M, volumes of tractors were down 26% YoY although the company remained the market leader with a share of 39.6%.

    Segmental break-up...
    (Rs m) 3QFY14  3QFY15  Change  9mFY14  9mFY15  Change 
    Automotive revenues 61,743 58,176 -5.8% 177,434 175,993 -0.8%
    PBIT 6,146 4,830 -21.4% 17,266 15,675 -9.2%
    PBIT margin (%) 10.0% 8.3%   9.7% 8.9%  
    Farm Equipment revenues 40,987 34,722 -15.3% 111,458 108,117 -3.0%
    PBIT 7,214 4,947 -31.4% 19,086 16,840 -11.8%
    PBIT margin (%) 17.6% 14.2%   17.1% 15.6%  
    Others 55 52 -4.6% 188 181 -3.7%
    Total revenues 102,784 92,950 -9.6% 289,080 284,291 -1.7%
    *Excluding intersegment revenues

  • M&M's operating margins shrunk by 2.3% YoY to 11.7% during 3QFY15 largely on account of a rise in staff costs and other expenses (as percentage of sales). Staff costs increased from 5.9% of sales in 3QFY14 to 7% in the current quarter. Thus, operating profits fell by 25% YoY. As far as segments are concerned, both the automotive and farm equipment divisions saw margins contract during the quarter.

  • Despite the fall in operating profits, net profits grew by 6% YoY on account of the extraordinary income of Rs 2.9 bn during the quarter. On excluding the same, net profits declined by 27% YoY in tandem with that of operating profits.
What to expect?

At the current price of Rs 1,237, the stock is trading at a multiple of 21.1 times its trailing 12-month earnings (M&M and MVML combined). Going forward, the company has lined up a series of new launches over the first three quarters of FY16, which include 3 new platforms (2 compact UVs and 1 small LCV), 3 refreshes and 3 variants on existing platforms. In the tractor space, Dhruv will be launched towards the end of CY16, one more new product will be launched in CY17 and 2 new products will be launched in the 50 HP range from the Swaraj brand in FY16. The company has maintained its stance of earmarking Rs 75 bn for capex over the next three years and Rs 25 bn in subsidiaries and JVs.

In the Stock Select performance review of January 2015, we had changed our view on M&M from 'Buy' to 'Hold' as the stock had appreciated by around 5% at that time and there was not sufficient margin of safety to buy the stock at those levels. However, since then the stock has fallen by around 7%. Since there is no change in our target price and at the current price, the stock is giving an average annual return of around 16% from an FY17 perspective, we have changed our view on the stock from 'Hold' to 'Buy'.

We would like to remind our subscribers that for the purpose of risk minimisation, one should avoid having more than 5% exposure on any one stock from the overall equity portfolio. Please do visit our asset allocation section for further details.

To Read the Full Story, Subscribe or Sign In



DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group.
BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.
DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.
GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.
DETAILS OF ASSOCIATES:
  1. Quantum Information Services Private Limited (QIS) having its registered office at 103, Regent Chambers, Nariman Point, Mumbai 400021 is registered under SEBI (Investment Advisers) Regulations, 2013 vide Registration No. INA000000680. QIS provides information on mutual funds and personal financial planning, financial markets in general, and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services through its website www.personalfn.com
  2. Agora Holdings (Cyprus) Limited having its registered office at Akropolis, 59-61, 3rd Floor, Office 301 Strovolos 2012 Nicosia Cyprus belongs to Agro group (Agora) which owns www.agora-inc.com and is one of the largest and most successful consumer newsletter publishers in the world.
  3. Common Sense Living Private Limited (CSL) owns www.commonsenseliving.co.in and is an initiative that provides straightforward lifestyle and wealth-building ideas from wealth coach Mark Ford. CSL is 100% subsidiary Company of Equitymaster.
DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

M&M SHARE PRICE


Dec 13, 2017 (Close)

TRACK M&M

M&M - FORD COMPARISON

COMPARE M&M WITH

MARKET STATS