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M&M: All round buoyancy! - Views on News from Equitymaster
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M&M: All round buoyancy!
Oct 29, 2009

Performance summary
  • Standalone topline grows by 36% YoY during the quarter, driven by robust sales in both its key divisions.
  • Operating margins expand by a whopping 12.3% over the same quarter last year, resulting into the company more than quadrupling its operating profits. The expansion was made possible mainly on account of lower raw material costs
  • Net profits grow nearly threefold as higher tax rates take some sheen off the strong operating performance. It nevertheless is a very strong performance by the company
  • Half yearly bottomline also nearly triples on the back of a 34% growth in topline
  • Consolidated profits during the quarter grow by 127% YoY on the back of 6% growth in topline


Standalone financial snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Sales 33,547 45,578 35.9% 65,650 88,004 34.0%
Expenditure 31,566 37,266 18.1% 61,147 73,602 20.4%
Operating profit (EBDITA) 1,981 8,312 319.6% 4,503 14,402 219.8%
Operating profit margin (%) 5.9% 18.2%   6.9% 16.4%  
Other income 1,168 1,333 14.1% 1,615 1,569 -2.8%
Interest 122 128 4.9% 202 187 -7.5%
Depreciation 669 892 33.4% 1,285 1,777 38.2%
Exceptional income/(losses) 512 908 77.1% 410 908 121.3%
Profit before tax 2,359 8,625 265.7% 4,630 14,006 202.5%
Tax 404 2,504 519.1% 980 3,876 295.4%
Profit after tax/(loss) 2,467 7,029 185.0% 4,060 11,038 171.9%
Net profit margin (%) 7.4% 15.4%   6.2% 12.5%  
No. of shares (m)       258.6 278.8  
Diluted earnings per share (Rs)         56.1  
P/E ratio (x)*         16.5  
* On a trailing twelve month basis

**It should be noted that the results may not be exactly comparable with the previous period as the numbers for the previous period includes the performance of Punjab Tractors only for the month of August and September

What has driven performance in 2QFY10?
  • Both the key segments of the company, viz. the automotive segment and the farm equipment segment put in a very strong performance. As far as the automotive segment is concerned, revenues were higher by 38% YoY and this was led by the 15% growth in volumes. UV sales came in particularly strong, growing by 44% YoY as new launches and revival in auto sales boosted volumes. While there was a de-growth in all the other segments including exports, the handsome growth in the UV division more than made up for the shortfall. Also, with UVs enjoying better realisations, growth in revenues in value terms came in much higher than overall growth in volumes.

  • On the farm equipment front, revenues came in higher by a strong 58% YoY on the back of a 41% growth in volumes. Although a significant part of this improvement has been driven by merger with Punjab Tractors, if one does a like to like comparison, the performance of the division still turns out to be impressive. It should be noted that the domestic tractor industry had a record performance in the first six months of the current fiscal. However, with a substantial part of the country reeling under drought, the performance may not be sustained during the second half of the year.

    Segmental break up...
    Segment 2QFY09 2QFY10 % change
    Automotive      
    Units sold 63,045 72,661 15.3%
    Revenues 19,478 26,869 37.9%
    PBIT 1,326 4,154 213.1%
    PBIT margin 6.8% 15.5%  
    Farm Equipment Segment      
    Units sold 28,787 40,482 40.6%
    Revenues 11,785 18,556 57.5%
    PBIT 1,480 3,784 155.6%
    PBIT margin 12.6% 20.4%  
    Other segments      
    Revenues 203 230 13.4%
    PBIT 35 52 48.2%
    PBIT margin 17.3% 22.6%  

  • Thanks to a massive drop in raw material costs, company’s operating margins have improved by more than 12%, resulting into more than fourfold jump in operating profits. With commodity prices doing a sharp reversal from their record highs during same quarter last year and with the company not having passed this to the end customers, profitability has received a big boost. While similar margins may be difficult to maintain in the forthcoming quarters, they are unlikely to revisit the lows of last year.

  • Growth in net profits has come in at 185%. This is lower than the growth in operating profits mainly due to a more than six fold jump in tax charges. The company’s effective tax rate has gone up to 29% from 17% during 2QFY09.

  • On a consolidated basis, the company’s PAT (excluding minority interest) witnessed a growth of 127% YoY, once again driven by the strong performance of the auto business. Among other notable performers were the financial services and the hospitality business. IT business on the other hand proved to be a drag this time around.

What to expect?
At the current price of Rs 958, the stock trades at a slight premium of 5% to the company’s sum of the parts valuation from a FY12 perspective. While the company has bettered our expectations and we will have to revise our target price upwards, we don’t think there is a significant upside left from the current levels. We will update our numbers shortly.

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