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M&M: Auto Segment Fuels Growth - Views on News from Equitymaster
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M&M: Auto Segment Fuels Growth
Mar 10, 2016

Mahindra & Mahindra (M&M) announced the third quarter results of financial year 2015-2016 (3QFY16). The company has reported a 15% YoY growth in sales, while net profits fell by 15% YoY (M&M and MVML combined). Here is our analysis of the results.

Performance summary

  • Revenues (M&M and MVML combined) grow by a decent 15% YoY during 3QFY16 led by the automotive business.
  • Operating margins expand by 1.6% to 13.5% in 3QFY16; thus the operating profits grow by 31% YoY.
  • Net profits fall by 15% YoY. However, excluding the extraordinary income in 3QFY15, net profits grow by 23% YoY.

    Financial performance: M&M and MVML** combined

    (Rs m) 3QFY15 3QFY16 Change 9mFY15 9mFY16 Change
    Sales 91,047 104,656 14.9% 279,675 286,964 2.6%
    Expenditure 80,251 90,518 12.8% 243,681 247,671 1.6%
    Operating profit (EBDITA) 10,797 14,138 30.9% 35,993 39,293 9.2%
    Operating profit margin (%) 11.9% 13.5% 12.9% 13.7%
    Other income 897 929 3.5% 7,250 6,975 -3.8%
    Depreciation 2,638 3,328 26.1% 8,223 8,799 7.0%
    Interest 663 554 -16.4% 2,206 1,692 -23.3%
    Profit before tax 8,393 11,185 33.3% 32,814 35,777 9.0%
    Exceptional items 2,993 0 2,993 0
    Tax 1,719 2,980 73.4% 7,436 9,480 27.5%
    Profit after tax/(loss) 9,668 8,205 -15.1% 28,372 26,297 -7.3%
    Net profit margin (%) 10.6% 7.8% 10.1% 9.2%
    No. of shares (m) 589.3 589.9
    Diluted earnings per share (Rs)* 53.9
    P/E ratio (x)* 22.9

    (*On a trailing 12-month basis)
    (**Mahindra Vehicle Manufacturers Ltd)

  • What has driven performance in 3QFY16?

    • Mahindra and Mahindra (M&M) reported a decent 15% YoY growth in revenues during the quarter led by the strong performance of the automotive business. The revenues of this segment were up 21% YoY, while the revenue growth for the farm equipment segment remained tepid at 4% YoY.
    • As far as the automotive business is concerned, revenues grew by a healthy 21% YoY as the volumes were up 15% YoY. Growth was largely aided by new product launches. In this, the utility vehicles (UVs) grew by 18% YoY, while in the mini truck segment (less than 2T), volumes surged 173% YoY led by the launch of Jeeto in June 2015.
    • The farm equipment segment put up a subdued show with revenues growing by a tepid 4% YoY. The tractor industry as a whole witnessed a drop in volumes as farm incomes reduced. M&M's tractor volumes, however, managed to grow by 6% YoY.

      Segmental break-up...

      (Rs m) 3QFY15 3QFY16 Change 9mFY15 9mFY16 Change
      Automotive revenues 57,027 69,173 21.3% 173,447 188,013 8.4%
      PBIT 4,830 7,054 46.1% 15,675 18,988 21.1%
      PBIT margin (%) 8.5% 10.2% 9.0% 10.1%
      Farm Equipment revenues 34,316 35,823 4.4% 106,883 99,986 -6.5%
      PBIT 4,947 5,483 10.8% 16,840 16,444 -2.4%
      PBIT margin (%) 14.4% 15.3% 15.8% 16.4%
      Others 52 53 1.3% 181 145 -19.9%
      Total revenues 91,395 105,049 14.9% 280,512 288,145 2.7%

      *Excluding intersegment revenues

    • M&M's operating margins improved by 1.6% YoY to 13.5% during 3QFY16 largely on account of a fall in raw material costs and staff costs (as percentage of sales). Raw material costs fell from 70.3% of sales in 3QFY15 to 68.4% in 3QFY16 led by benign commodity prices. Other expenses, however, were high because of higher spends on advertisement and sales promotion for new launches. Thus, overall, operating profits grew by 31% YoY during the quarter. As far as segments are concerned, margins improved by 1.7% and 0.9% for the automotive and the farm equipment segments respectively.
    • Net profits fell by 15% YoY during the quarter. However, this was because of the extraordinary income of Rs 2.9 bn in 3QFY15, which was not there this quarter. On excluding this, net profits grew by 23% YoY. This was lower than the growth in operating profits on account of higher taxes.
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