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M&M: Begins year on a subdued note - Views on News from Equitymaster
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M&M: Begins year on a subdued note
Aug 20, 2014

Mahindra & Mahindra (M&M) announced the first quarter results of financial year 2014-2015 (1QFY15). The company has reported a growth of 1% YoY in sales while net profits grew by 4% YoY (M&M and MVML combined). Here is our analysis of the results.

Performance summary
  • Revenues (M&M and MVML combined) grow by a modest 1% YoY during 1QFY15 as revenue growth from both the automotive and farm equipment segments remain subdued.
  • Operating margins expand by 0.5% to 14.3% in 1QFY15; thus the operating profits grow by 5% YoY.
  • Led by the tepid growth in both revenues and operating profits, net profits grow by 4% YoY.

Financial performance: M&M and MVML** combined
(Rs m) 1QFY14  1QFY15  Change
Sales 98,203 99,073 0.9%
Expenditure 84,676 84,881 0.2%
Operating profit (EBDITA) 13,526 14,192 4.9%
Operating profit margin (%) 13.8% 14.3%  
Other income 976 1,447 48.3%
Depreciation 2,286 2,802 22.6%
Interest 831 816 -1.8%
Profit before tax 11,386 12,021 5.6%
Tax 2,788 3,057  
Profit after tax/(loss) 8,598 8,964 4.3%
Net profit margin (%) 8.8% 9.0%  
No. of shares (m) 589.3 589.9  
Diluted earnings per share (Rs)*   65.1  
P/E ratio (x)*   20.9  
(*On a trailing 12-month basis)
(**Mahindra Vehicle Manufacturers Ltd)

What has driven performance in 1QFY15?
  • Mahindra and Mahindra (M&M) reported growth of a mere 1% YoY in revenues during the quarter. This was largely due to the poor performance of the automotive division, where revenues remained flat. The farm equipment division also put up a tepid show as revenues were up 1% YoY.

  • As far as the automotive business is concerned, volumes de-grew for the company as was the trend in the industry. The company had a market share of 40.5% in the utility vehicles space. The farm equipment segment also put up a poor show with revenues growing by 1% YoY. However, although growth in tractor volumes in the domestic market stood at around 0.7% YoY, the industry de-grew by 1.2% YoY. This resulted in the company's market share increasing to 42.4% in this segment. Crop damage due to unseasonal rains in some parts of India in March coupled with deficient monsoons in June led to the de-growth in the domestic tractor industry.

    Segmental break-up...
    (Rs m) 1QFY14 1QFY15 Change
    Automotive revenues 59,806 59,886 0.1%
    PBIT 5,855 6,243 6.6%
    PBIT margin (%) 9.8% 10.4%  
    Farm Equipment revenues 38,995 39,329 0.9%
    PBIT 6,527 6,661 2.0%
    PBIT margin (%) 16.7% 16.9%  
    Others 74 65 -12.2%
    Total revenues 98,876 99,280 0.4%
    *Excluding intersegment revenues

  • M&M's operating margins improved by 0.5% YoY to 14.3% during 1QFY15 largely on account of fall in raw material costs (as percentage of sales) from 70.4% of sales in 1QFY14 to 68.6% in the current quarter. Thus, operating profits grew by 5% YoY. As far as segments are concerned, both the automotive and farm equipment divisions witnessed improvement in margins during the quarter.

  • Led by the tepid growth in both revenues and operating profits, net profits grew by 4% YoY.
What to expect?
At the current price of Rs 1,359, the stock is trading at a multiple of 20.9 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 next 15 months, which include 3 products in the passenger segment and 2 in the commercial segment. For FY15, the tractor industry is expected to grow at around 5% as per the management, while the passenger vehicles segment is expected to log in a growth of 4-6%. However, the management does not expect the LCV segment to come out of the red because of the heavy de-growth in the sub two tonne category. 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. Our view is that investors 'Hold' on to the stock.

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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