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M&M: Farm division helps increase bottomline
Mar 5, 2014

Mahindra & Mahindra (M&M) announced its results for the quarter ended December 2013 (3QFY14) recently. The company reported flat revenues during the quarter, while net profits grew by 9% YoY (M&M and MVML combined). Here is our analysis of the results.

Performance summary
  • Revenues (M&M and MVML combined) came in flat during 3QFY14. While revenues from the auto business declined by 10% YoY, its farm equipment business grew by 20% YoY.
  • Operating profits grew by 11% during 3QFY14, as margins expanded to 15% during quarter. Margin expansion was largely due to lower input costs.
  • Profits grew by 9% YoY, largely in line with the growth in operating profits.
  • During 9mFY14, revenues and profits grew by 1% YoY and 10% YoY respectively.

(Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Sales 102,426 102,416 0.0% 283,737 286,026 0.8%
Expenditure 88,631 87,091 -1.7% 244,795 244,150 -0.3%
Operating profit (EBDITA) 13,795 15,325 11.1% 38,942 41,877 7.5%
Operating profit margin (%) 13.5% 15.0%   13.7% 14.6%  
Other income 758 976 28.8% 4,680 5,576 19.1%
Depreciation 2,054 2,235 8.8% 5,899 6,560 11.2%
Interest 725 883 21.9% 2,179 2,534 16.3%
Profit before tax 11,774 13,183 12.0% 35,544 38,359 7.9%
Tax 2,625 3,181 21.2% 8,829 8,985 1.8%
Profit after tax/(loss) 9,149 10,002 9.3% 26,715 29,374 10.0%
Net profit margin (%) 8.9% 9.8%   9.4% 10.3%  
No. of shares (m)       614.0 615.9  
Diluted earnings per share (Rs)*         61.9  
P/E ratio (x)*         15.2  
(*On a trailing 12-month basis)
(**Mahindra Vehicle Manufacturers Ltd)

What has driven performance in 3QFY14?
  • M&M reported flat revenues for the quarter ended December 2013. While revenues from the company's auto division came in lower by about 10% YoY, sales of its farm equipment business grew by 20% YoY.

  • As far as the automotive business is concerned, volumes de-grew for the company on account of the various headwinds in the auto industry. The company had a market share of 38.2% in the utility vehicles space. The farm equipment segment on the other hand did quite well during the quarter on account of good monsoons and the low base effect last year. Growth in tractor volumes at around 22% YoY was in line with that of the industry. The company has a domestic market share of 41.9% in this segment.

    Segmental break-up...
    (Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Automotive revenues 68,761 61,610 -10.4% 193,248 175,767 -9.0%
    PBIT 7,669 7,328 -4.4% 22,284 20,112 -9.7%
    PBIT margin (%) 11.2% 11.9%   11.5% 11.4%  
    Farm Equipment revenues 34,040 40,987 20.4% 91,357 111,458 22.0%
    PBIT 5,274 7,214 36.8% 14,019 19,086 36.1%
    PBIT margin (%) 15.5% 17.6%   15.3% 17.1%  
    Others 144 55 -62.0% 465 188 -59.4%
    Total revenues 102,945 102,652 -0.3% 285,070 287,413 0.8%
    *Excluding intersegment revenues

  • M&M's operating profits increased by 11% YoY during the quarter as the company benefited from lower input costs. Raw material costs stood at 69% of revenues, as compared to 72.1% during corresponding period last year. Coming to the segment wise performance, PBIT margins of the company's auto division came in at 11.9% as compared to 11.2% during 3QFY13; PBIT margins of the company's farm equipment division came in at 17.6% as compared to 15.5%, thereby indicating that profit growth was largely driven by the latter.

  • While other income came in higher by about 29% YoY, it was offset to some extent by the increase in interest costs. As such, net profits rose by 9% YoY led by a good operating performance.

  • During 9mFY14, the company's revenues and profits increased by 1% and 10% respectively. While the company's automotive division witnessed a revenue decline of 9% YoY during the period, M&M's farm equipment division's sales increased by 22% YoY. The change in overall product mix led to a faster growth in operating profits and thus, to its overall profitability during the nine month period ended December 2013.
What to expect?
At the current price of Rs 942, the stock is trading at a multiple of 15.2 times its trailing 12-month earnings (M&M and MVML combined). Going forward, 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. The outlook for the auto industry in the near term remains weak and there are expectations that growth should pick up post the general elections in 2014. Overall, we have a 'Buy' view on the stock from a 2-3 years perspective.

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.

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