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M&M: Quite a subdued quarter - Views on News from Equitymaster
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M&M: Quite a subdued quarter
Nov 12, 2014

Mahindra & Mahindra (M&M) announced the second quarter results of financial year 2014-2015 (2QFY15). The company has reported a growth of 6% YoY in sales while net profits grew by 2% 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 6% YoY during 2QFY15 as revenue growth from both the automotive and farm equipment segments remain subdued.
  • Operating margins contract by 1.5% to 12% in 2QFY15; thus the operating profits fall by 7% YoY.
  • Despite the fall in operating profits, net profits grow by 2% YoY led by higher other income.


Financial performance: A snapshot
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Sales 86,942 91,779 5.6% 185,145 190,852 3.1%
Expenditure 75,165 80,774 7.5% 159,841 165,655 3.6%
Operating profit (EBDITA) 11,777 11,005 -6.6% 25,304 25,197 -0.4%
Operating profit margin (%) 13.5% 12.0%   13.7% 13.2%  
Other income 3,609 4,906 35.9% 4,585 6,353 38.6%
Depreciation 2,452 2,783 13.5% 4,737 5,585 17.9%
Interest 964 727 -24.6% 1,795 1,543 -14.0%
Profit before tax 11,971 12,401 3.6% 23,357 24,421 4.6%
Tax 2,398 2,660   5,185 5,717 10.3%
Profit after tax/(loss) 9,574 9,741 1.7% 18,172 18,705 2.9%
Net profit margin (%) 11.0% 10.6%   9.8% 9.8%  
No. of shares (m)       589.3 589.9  
Diluted earnings per share (Rs)*         64.2  
P/E ratio (x)*         19.6  
(*On a trailing 12-month basis)
(**Mahindra Vehicle Manufacturers Ltd)

What has driven performance in 2QFY15?
  • Mahindra and Mahindra (M&M) reported growth of 6% YoY in revenues during the quarter. This was largely due to the tepid performance of the automotive division, where revenues were up 4% YoY. The farm equipment division put up a relatively better show as revenues were up 8% 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 33.2% in the utility vehicles space. The farm equipment segment also put up a subdued show with revenues growing by 8% YoY. A below average and delayed monsoon in some parts of India and crop damage due to cyclones were some of the factors that led to the domestic tractor industry witnessing flat growth. For M&M, volumes of tractors were also flat although the company remained the market leader with a share of 40.6%.

    Segmental break-up...
    (Rs m) 2QFY14  2QFY15  Change  1HFY14  1HFY15  Change 
    Automotive revenues 55,885 57,930 3.7% 115,691 117,816 1.8%
    PBIT 5,264 4,602 -12.6% 11,119 10,845 -2.5%
    PBIT margin (%) 9.4% 7.9%   9.6% 9.2%  
    Farm Equipment revenues 31,476 34,067 8.2%  70,472 73,396 4.1%
    PBIT 5,345 5,232 -2.1% 11,872 11,893 0.2%
    PBIT margin (%) 17.0% 15.4%   16.8% 16.2%  
    Others 59 64 7.7% 1,152 490 -57.5%
    Total revenues 87,421 92,062 5.3% 187,314 191,702 2.3%

  • M&M's operating margins shrunk by 1.5% YoY to 12% during 2QFY15 largely on account of a rise in other expenses (as percentage of sales) from 11.2% of sales in 2QFY14 to 13.4% in the current quarter. The overall rise in expenses was a result of increase in CSR spend, rise in minimum wages in Maharashtra, higher launch related expenses and the like. Thus, operating profits fell by 7% 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 2% YoY led by higher other income.
What to expect?

At the current price of Rs 1,255, the stock is trading at a multiple of 19.6 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. 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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