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10 August 2016
1QFY17 Results Update | Sector: Automobiles
Mahindra & Mahindra
BSE SENSEX S&P CNX CMP: INR1,448 TP: INR1,715 (+18%) Buy 27,775 8,575
Bloomberg MM IN Equity Shares (m) 592.6 M.Cap.(INR b)/(USD b) 858.1 / 12.9
52-Week Range (INR) 1,509/1,092 1, 6, 12 Rel. Per (%) -3/8/8 Avg Val, (INR m) 1,444 Free float (%) 74.6
Financials & Valuations (INR b) Y/E Mar 2016 2017E 2018E Sales 436.4 499.0 584.0 EBITDA 45.9 52.7 66.1 NP (incl. MVML) 32.9 39.1 50.6 Cons. EPS (INR) 53.6 73.2 98.7 EPS Gr. (%) 12.1 18.6 29.4 BV/Sh. (INR) 366.3 410.3 468.6 RoE (%) 15.4 15.4 17.8 RoCE (%) 12.6 12.9 15.1 Cons. P/E (x) 27.0 19.8 14.7 P/BV (x) 4.0 3.5 3.1
Estimate change TP change Rating change
In-line; pressure in Auto business offset by Tractors; Ups guidance on Tractors; SYMC reports third quarter of profits driven by Tivoli 1QFY17 volumes increased ~12% YoY (+5% QoQ), driven by growth of 20% YoY
(+72% QoQ) in Tractors and ~12% YoY in UVs (incl. pickups). Realizations declined 2% QoQ (flat YoY) to ~INR546k (est. of ~INR549k) due to the sale of agri-business (~140bp impact). Net revenues grew ~11% YoY to INR105.2b (in-line).
EBITDA margin improved 160bp QoQ (-10bp YoY) to 14.1% (est. of 14.5%) due to a 250bp QoQ reduction in other expenses. Auto PBIT margin declined 190bp YoY (-240bp QoQ) to 7.8% due to the lapse of incentives at the Haridwar plant (~200bp impact), while FES PBIT margin improved 120bp YoY (+540bp QoQ) to 18.8% (benefit of operating leverage and hiving off of the lower-margin agri-business). Adj. PAT grew ~8% YoY (+36% QoQ) to INR8.9b (est. of ~INR9b).
Takeaways from earnings call: Tractor industry volume growth guidance was increased to 14-16% (v/s 10% earlier), while the company expects PV industry growth to be 8-10% in FY17. b) MM will launch a 50HP tractor in Swaraj brand in FY17. c) It plans to launch one new product annually from CY17. d) Negative sentiment toward diesel engines was evident from the decline in the industry share of diesel to ~27% from 47% in FY13. It will offer petrol engine in XUV5OO by end-FY17 and in Scorpio by 1QFY18. e) For Bolero, it will roll out new initiatives to recover volumes in the next 4-6 weeks. f) In 2W business, it has downsized staff by 50% and plans to focus on niche areas. g) SsangYong (SYMC) reported profits for the third consecutive quarter.
Valuation and view: The stock trades at 19.8x FY17E and 14.7x FY18E consolidated EPS. Maintain Buy with a TP of ~INR1,715 (FY18E SOTP).
Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Jinesh Gandhi ([email protected]); +91 22 3982 5416 Venil Shah ([email protected]); +91 22 3982 5445 /Aditya Vora ([email protected]); +91 22 3078 4701
Motilal Oswal values your support in the Asiamoney Brokers Poll 2016 for
India Research, Sales and Trading team. We request your ballot.
Mahindra & Mahindra
10 August 2016 2
Volume growth drives Revenues; Realizations decline QoQ M&Ms volumes grew by ~12% YoY (+5% QoQ), driven by 20% YoY(+72% YoY)
growth in tractors (highest quarterly volume growth since the past 3 years) and~12% YoY growth in Uvs (incl pickups). Passenger Uvs grew by 13% YoY as newlaunches contributed to incremental growth. Besides growth of 10% YoY frompickups supported overall growth. 3Ws which account for 6% of overall volumesdeclined by 1% YoY.
Market share in the UV segment plummeted from 41% in 4QFY16 to 32% (-9ppQoQ) in 1QFY17 as the momentum of new launches in 1QFY16 slowed down,coupled with decline of 36% QoQ of one of its highest selling UVs Balero. Launchof new models by competitors (MSIL’S Brezza) too led to decline in marketshare.
Realizations declined 2% QoQ (flat YoY) to ~INR546k (v/s est ~INR549k),primarily due to 14% QoQ decline (-4%YoY) in tractor realizations. However a 3%growth QoQ (+2%YoY) in the Auto realizations arrested further fall in overallrealization growth.
Tractor realization were impacted by ~INR20,000, while blended realizationswere hit by ~INR7,700 due to sale of Agri business to its wholly ownedsubsidiary. (Reduction in revenues of ~INR 1.5b/ quarter).
As a result, net revenues grew ~11% YoY (+4% QoQ) to INR105.2b (v/s est~INR105.9b). However increase in excise duty on lapse of Haridwar benefit(~INR1.3b/quarter impact) limited the rise in net revenues.
Exhibit 1: New launches drive incremental growth in the UV segment
58,6
16
62,7
51
70,4
83
72,0
76
56,9
69
47,5
03
55,1
27
63,0
25
52,1
80
47,9
06
49,7
24
57,0
27
49,4
57
45,2
28
58,6
60
69,0
82
5590
9
1QFY
132Q
FY13
3QFY
134Q
FY13
1QFY
142Q
FY14
3QFY
144Q
FY14
1QFY
152Q
FY15
3QFY
154Q
FY15
1QFY
162Q
FY16
3QFY
164Q
FY16
1QFY
17
UV Volumes Domestic (Units)
Source: Company, MOSL
Exhibit 2: Tractor volumes grow by 20% YoY on the back of a normal monsoon
59,5
78
49,8
40
64,8
00
49,6
64
74,5
77
59,2
64
78,4
19
55,3
74
74,5
55
61,1
52
59,7
14
38,6
04
62,3
58
45,2
46
62,6
66
43,3
21
74,5
95
1QFY
132Q
FY13
3QFY
134Q
FY13
1QFY
142Q
FY14
3QFY
144Q
FY14
1QFY
152Q
FY15
3QFY
154Q
FY15
1QFY
162Q
FY16
3QFY
164Q
FY16
1QFY
17
Tractors Volumes (Units)
Source: Company, MOSL
Exhibit 3: UV (ex-pickups) share falls to 31.6%
49.8
45
.4
47.9
47
.8
46.0
39
.7
39.0
44
.9
41.0
33
.1
37.7
39
.0
38.6
32
.7
38.6
41
.0
31.6
1QFY
132Q
FY13
3QFY
134Q
FY13
1QFY
142Q
FY14
3QFY
144Q
FY14
1QFY
152Q
FY15
3QFY
154Q
FY15
1QFY
162Q
FY16
3QFY
164Q
FY16
1QFY
17
Market Share (%)
Source: Company, MOSL
Exhibit 4: M&M’s tractor market share at new high
41.5
40
.3
41.4
37
.2
41.4
40
.5
41.9
37
.9
42.2
40
.6
39.6
35
.5
41.5
39
.5
42.7
39
.4
43.9
1QFY
132Q
FY13
3QFY
134Q
FY13
1QFY
142Q
FY14
3QFY
144Q
FY14
1QFY
152Q
FY15
3QFY
154Q
FY15
1QFY
162Q
FY16
3QFY
164Q
FY16
1QFY
17
Market Share (%)
Source: Company, MOSL
Mahindra & Mahindra
10 August 2016 3
Exhibit 5: Auto realization rise 3% QoQ
475.
0 47
8.2
476.
0 49
1.1
496.
8 47
9.6
479.
8 513.
9 539.
8 50
8.6
522.
0 549.
2 55
4.1
541.
0 53
9.7
545.
0 54
8.8
1QFY
132Q
FY13
3QFY
134Q
FY13
1QFY
142Q
FY14
3QFY
144Q
FY14
1QFY
152Q
FY15
3QFY
154Q
FY15
1QFY
162Q
FY16
3QFY
164Q
FY16
1QFY
17
Auto Realization (INR '000)
Source: Company, MOSL
Exhibit 6: FES realization down 14% QoQ due to sale of agri-business
516.
7 53
2.4
537.
4 57
4.7
522.
9 53
1.1
522.
7 57
5.7
522.
3 55
7.1
581.
5 65
6.7
570.
6 62
8.6
571.
6 63
6.4
546.
6
1QFY
132Q
FY13
3QFY
134Q
FY13
1QFY
142Q
FY14
3QFY
144Q
FY14
1QFY
152Q
FY15
3QFY
154Q
FY15
1QFY
162Q
FY16
3QFY
164Q
FY16
1QFY
17
FES Realization (INR '000)
Source: Company, MOSL
Lapse of excise benefit and new product launches pull down auto margins; while FES margins at 8 year high Gross margins improved by 30bp QoQ (-40bpQoQ) as RM cost marginally
declined (-30bp YoY), despite Hairdwar plant impact. EBITDA margins expanded by 160bp QoQ (-10bp YoY) to 14.1% (v/s est. 14.5%)
mainly due to a sharp reduction in other expenses (-250bp). EBITDA marginswere flat on a YoY basis.
Auto PBIT margin contracted 190bp YoY (-240bp YoY) to 7.8%. Decline in automargins were primarily due to the lapse of excise duty benefit (~200bp impact)at the Haridwar plant in 4QFY16, along with relatively newer product lifecycle.
FES PBIT margin zoomed by 540bp QoQ (+120bp YoY) to 18.8%, driven byoperating leverage and hive-off of lower margin agri-business.
Adj PAT grew ~8% YoY (+36% QoQ) to INR8.9b (v/s est ~INR9b). It accounted for~INR910m profit on transfer of agriculture business to its wholly ownedsubsidiary, translating into reported PAT of ~INR9.6b.
Exhibit 7: EBITDA margins up 160bp QoQ to 14.1%
12,3
50
12,7
97
13,7
95
14,3
52
13,5
26
11,7
77
14,3
55
12,8
23
14,1
92
11,0
05
10,7
97
10,0
39
13,4
50
11,6
26
14,1
38
12,6
94
14,8
85
13.9 13.8 13.5 14.4 13.8 13.5 14.0 12.8 14.5
12.2 11.7 11.0 14.2 13.2 13.5 12.5
14.1
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
FY13 FY14 FY15 FY16 FY17
EBITDA (INR m) M&M+MVML EBITDA (%)
Source: Company, MOSL
Exhibit 8: Trend in S/A and M&M (incl. MVML) margins
11.8 11.4 11.2 12.1 12.8 12.8 13.1
8.2
12.5 10.7 10.4
9.5 12.7
11.1 11.3 9.9
11.6
13.9 13.8 13.5 14.4 13.8 13.5 14.0
12.8 14.5
12.2 11.7 11.0
14.2 13.2 13.5
12.5 14.1
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
FY13 FY14 FY15 FY16 FY17
M&M EBITDA (%) M&M+MVML EBITDA (%)
Source: Company, MOSL
Mahindra & Mahindra
10 August 2016 4
Exhibit 9: Auto PBIT margins down 190bp to 7.8%
11.2 12.2 11.2 12.4
9.8 9.4 10.0 9.0 10.5
7.9 8.3 8.8 10.2 9.8 10.2 9.7
7.8
1QFY
132Q
FY13
3QFY
134Q
FY13
1QFY
142Q
FY14
3QFY
144Q
FY14
1QFY
152Q
FY15
3QFY
154Q
FY15
1QFY
162Q
FY16
3QFY
164Q
FY16
1QFY
17
AUTO PBIT margins (%)
Source: Company, MOSL
Exhibit 10: FES PBIT margins jump 540bp QoQ to 18.8%
15.7 14.8 15.5 16.0 16.7 17.0 17.6 17.1 17.1 15.4 14.2
11.2
17.6 16.4 15.3 13.0
18.8
1QFY
132Q
FY13
3QFY
134Q
FY13
1QFY
142Q
FY14
3QFY
144Q
FY14
1QFY
152Q
FY15
3QFY
154Q
FY15
1QFY
162Q
FY16
3QFY
164Q
FY16
1QFY
17
FES PBIT margins (%)
Source: Company, MOSL
Key highlights from Earnings call
Farm Equipment Segment: Tractor industry guidance: Management estimates tractor industry to grow by
13-16% in FY17. Industry grew by 14.7% YTD. Market share: M&M achieved highest market share in tractors in the past 10
years driven by newly launched products. New launches: It will launch a 50HP tractor of Swaraj along with variants of
Yuvo and Nuvo tractors during the year. Inventory during 1QFY17 was similar as compared to the previous quarter.
However receivable days reduced due to better collection from dealers duringthe quarter.
It does not expect any capacity constraints at least for the next2-3 years, even ifthe demand grows by 15% pa.
RM cost for tractors was flat on a QoQ basis. The management does not anticipate any major capital expenditure in FES in
FY17, apart from routine maintenance capex. Sale of Agri business to its fully owned subsidiary is likely to have an impact of
~INR1500m/ quarter from revenues. It expects marginal impact on PAT andcapital employed.
GST impact: It expects a 12% GST rate to be neutral.
Auto Segment: Price increase of 1% was taken in 1QFY17 to compensate for rising commodity
costs (+1% QoQ). Management feels that demand for TUV3OO and Bolero have moderated due to
negative sentiments on account of the diesel ban along with price correctionfrom competitors. For Bolero, it will roll-out new initiatives to recover volumesin next 4-6 weeks.
New launches: It plans to launch the XUV5OO by end of FY17 and petrol versionof Scorpio in 1QFY18.The management guided 1 new product launch every yearstarting next year till 2020.
Negative sentiment towards Diesel: Negative sentiment towards diesel enginereflected in industry share of diesel declining to ~27% (v/s 47% in FY13). It willoffer petrol engine in XUV5OO by end FY17 and in Scorpio by 1QFY18.
Ssangyong on recovery path: Ssangyong is witnessing recovery in volumes ledby Tivoli. As a result, it reported profits for 3rd consecutive quarter.
2 wheeler segment: It has started right sizing the 2W business, with reductionof employees (given VRS to half of the employees). It plans to focus on niche
Mahindra & Mahindra
10 August 2016 5
areas in the 2W industry, on premium motorcycle Mojo and higher capacity scooter (Gusto 125cc).
M&HCV segment: Its market share improved in M&HCV to ~3.6% (+100bp YoY)and is targeting market share of 7-8% over next few years.
Valuation and view Compact SUVs key driver of UV industry, FY 17 growth to be driven by newly
launched models: UV segment is expected to outgrow PV industry over next 3-5 years. However, growth in UVs is expected to be driven by increasingacceptance of compact SUVs by car buyers, while traditional UVs (M&M’s forte)could show cyclical recovery in volumes. M&M launched 3 new platforms inFY16 addressing gaps in its product portfolio, two of which are in compact(TUV1OO) and micro SUVs (KUV1OO), addressing both urban and ruralconsumer, while the third was a SCV product. Also, it launched 3 majorrefreshes and 3 variants of existing models in FY16. We estimate MM’s UVvolumes to grow at ~13.7% CAGR over FY16-18E. MM is responding to changingindustry dynamics, it is this time challenged by market leaders like Maruti andHyundai in compact SUV segment, where MM is a weak player. We estimateprofitability of MM’s UV business to be under pressure in medium term, as itwill have shorten product refresh cycle and adopt very aggressive pricing.
Tractor volume to witness sharp recovery on the back of a normal monsoon:We expect tractor demand to see recovery in FY17 led by potential normalmonsoon. Also, considering high usage of tractors for non-farm usage (primarilyconstruction, infrastructure activities), resumption in investment activity couldboost demand over long term. We estimate tractor volume growth of ~17.5%CAGR over FY16-18E after 11% CAGR decline over FY14-16E. Further, we expectcontinued ramp-up in non-tractor mechanization (implements, harvesters etc),which should result in stronger revenue growth over FY16-FY18E.
Ssangyong ramp-up well, although near term volumes to be impacted by geo-political issues in Russia: While long term volume outlook remains positive forSsangyong’s driven by favorable product lifecycle, near term exports to Russiahave been impacted by geo-political issues. Ssangyong recently launched newcompact SUV Tivoli, it has received encouraging response. MM and Ssangyongare jointly working on engines, which are slated for CY15 launch, which shouldresult in cost savings of 2-3pp for Ssangyong.
Valuation & view: We believe the worst is over for MM, not only in its corebusinesses of tractors (driven by normal monsoon) and UVs (driven by recentlaunches), but also in key subsidiaries (MMFSL, SYMC etc). We expect ~36%CAGR in consolidated EPS over FY16-18 (v/s a decline of ~14% per year overFY14-16). The stock trades at 19.8x FY17E and 14.7x FY18E consolidated EPS.Maintain Buy, with TP of ~INR1,715 (FY18E SOTP).
Mahindra & Mahindra
10 August 2016 6
Exhibit 11: Revised estimates
FY17E FY18E
Rev Old Chg (%) Rev Old Chg (%)
Volumes ('000 units) 815 815 0.0 919 919 0.0 Net Sales 499 506 -1.4 584 586 -0.4EBITDA (%, incl MVML) 13.7 13.9 -30bp 14.4 14.4 0bp Net Profit 36 36 -1.1 46 46 0.4 EPS (INR) 59 60 -1.1 78 77 0.4 EPS (INR, incl MVML) 65.3 65.0 0.4 84.5 83.7 0.9 Cons EPS (INR) 73.2 72.6 0.9 98.7 95.8 3.0
Source: MOSL
Exhibit 12: M&M: Sum-of-the-parts (INR/share) FY16E FY17E
Core EPS (excl. subsidiary dividend) 58.0 76.4 PE attributable (x) 16 16 Value of core business 927 1,223 Value of subsidiaries @ Hold Co discount 20
1. Tech Mahindra 188 188 2. M&M Financial Services 136 136 3. Mahindra Lifespaces 10 10 4. Mahindra Holidays 35 35 5. Ssangyong 57 57 6. Mahindra CIE 16 16 7. Others - Value per share of M&M 48 48 Target price 1,355 1,650 Target price (after 20% discount) 1,419 1,715
Upside (%) (2.0) 18.4
Source: Company, MOSL
Exhibit 13: Valuations trading around historical average, reflecting improving fundamentals
Source: MOSL Source: MOSL
17.4
12.4
17.3 14.5
0
10
20
30
Aug-
01
Oct
-02
Dec
-03
Feb-
05
Apr-0
6
Jun-
07
Jul-0
8
Sep-
09
Nov
-10
Jan-
12
Mar
-13
Apr-1
4
Jun-
15
Aug-
16
P/E (x) 15 Yrs Avg(x)5 Yrs Avg(x) 10 Yrs Avg(x)
3.4
2.8 3.2
3.2
0.0
1.5
3.0
4.5
6.0
Aug-
01
Oct
-02
Dec
-03
Feb-
05
Apr-0
6
Jun-
07
Jul-0
8
Sep-
09
Nov
-10
Jan-
12
Mar
-13
Apr-1
4
Jun-
15
Aug-
16
P/B (x) 15 Yrs Avg(x)5 Yrs Avg(x) 10 Yrs Avg(x)
Mahindra & Mahindra
10 August 2016 7
Exhibit 14: Comparative valuation CMP Rating TP P/E (x) EV/EBITDA (x) RoE (%) RoCE (%)
Auto OEM's (INR)* (INR) FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E Bajaj Auto 2,849 Buy 2,944 20.0 16.2 13.9 11.4 31.2 33.0 30.4 32.2 Hero MotoCorp 3,321 Neutral 3,666 18.1 15.5 11.8 9.9 41.5 39.9 40.5 39.1 TVS Motor 296 Buy 323 24.1 18.4 14.6 11.3 27.1 28.7 28.0 30.2 M&M 1,448 Buy 1,715 19.8 14.7 16.3 13.0 15.4 17.8 12.9 15.1 Maruti Suzuki 4,867 Buy 5,509 22.2 17.7 12.9 10.7 20.3 21.6 27.6 28.9 Tata Motors 503 Buy 558 13.7 8.9 4.4 3.6 14.5 19.2 12.2 14.2 Ashok Leyland 88 Buy 118 13.5 10.4 7.5 5.9 29.8 31.0 21.9 25.2 Eicher Motors# 21,724 Buy 27,244 35.0 25.9 28.1 22.9 40.9 40.1 26.1 27.9 Auto Ancillaries Bharat Forge 822 Buy 921 29.9 22.3 15.0 12.3 16.9 20.0 11.6 14.5 Exide Industries 176 Buy 205 19.7 17.1 12.5 10.8 15.3 15.5 15.8 16.2 Amara Raja Batteries 907 Buy 985 26.2 21.6 15.8 13.4 25.2 24.7 23.9 23.7 BOSCH 25,006 Buy 24,766 45.4 35.6 31.0 26.2 19.3 21.2 27.6 28.2 # Nos. are on CY basis Source; MOSL
Mahindra & Mahindra
10 August 2016 8
Operating metrics
Exhibit 15: Snapshot of Revenue model 000 units FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E Tractors 214 235 224 268 234 214 261 300 Growth (%) 22.3 10.2 -4.9 19.5 -12.6 -8.7 22.0 15.0 % of total volumes 36.2 32.6 29.0 34.9 33.5 30.2 32.4 33.0 UVs 292 384 470 428 398 424 480 537 Growth (%) 22.8 31.6 22.4 -8.9 -7.2 6.7 13.0 12.0 LCVs (MTBL) 11 14 12 8 5 6 8 10 Growth (%) 12.7 24.8 -13.9 -31.4 -34.7 20.6 20.0 25.0 3-Ws 62 67 66 63 57 55 57 61 Growth (%) 39.8 8.5 -2.9 -3.4 -10.3 -3.2 4.0 6.0 Verito 11 18 16 8 2 3 3 3 Growth (%) 0.0 61.2 -12.2 -48.0 -80.5 62.5 0.0 0.0 M&HCVs (MTBL) 0 3 3 2 3 6 7 9 Growth (%) 0.0 0.0 -14.9 -34.2 -3.9 15.0 0.0 0.0 Total Autos 376 487 548 500 465 494 544 607 Growth (%) 25.1 27.5 17.7 -8.8 -7.0 6.3 10.2 11.6 % of total volumes 63.8 67.4 71.0 65.1 66.5 69.8 67.6 67.0 Total volumes 590 722 772 767 699 708 805 907 Growth (%) 24.9 21.9 9.5 -1.2 -10.2 1.3 15.1 12.8 ASP (INR '000/Unit) 391 437 507 514 542 571 562 585 Growth (%) 2.3 11.8 16.1 1.4 5.5 5.2 -1.5 4.0 Net Sales (INR b) 230 314 399 400 379 404 458 537 Growth (%) 27.8 36.2 27.1 0.2 -5.2 6.6 13.4 17.3
Source: Company, MOSL
Mahindra & Mahindra
10 August 2016 9
Story in charts: Tractors to drive growth for M&M
Exhibit 16: Tractors to see strong growth in FY17-18
235,
375 22
3,88
2
267,
634
234,
025
213,
591
260,
581
299,
668
10.2
(4.9)
19.5
(12.6) (8.7)
22.0 15.0
FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Tractor volumes (units) Growth (%)
Source: Company, MOSL
Exhibit 17: New product launches to drive UV CAGR of ~14%
384,
281
470,
301
428,
258
397,
586
424,
412
479,
586
537,
136
31.6
22.4
(8.9) (7.2)
6.7 13.0 12.0
FY12 FY13 FY14 FY15 FY16 FY17E FY18E
UVs (incl pick-ups) Growth (%)
Source: Company, MOSL
Exhibit 18: New launches at lower ASP to keep realization growth stagnant
362
,523
381
,748
390
,631
436
,754
506
,863
513
,843
542
,238
570
,685
562
,125
584
,610
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Net realizations (INR/unit)
Source: Company, MOSL
Exhibit 19: Margins to improve in the near term
3.2 1.6
3.8 3.8
13.4 13.7 14.4
FY12 FY13 FY14 FY15 FY16 FY17E FY18E
EBITDA (incl. MVML) (%)
Source: Company, MOSL
Exhibit 20: Capital efficiency has weakened
17.7
25.8
28.4
24.9
24.3
23.6
17.7
15.4
15.4
17.8
31.8
79.3
106.
8
87.6
72.5
55.6
35.4
30.7
28.0
32.9
FY09
FY10
FY11
FY12
FY13
FY14
E
FY15
FY16
FY17
E
FY18
E
RoE (%) RoIC (%)
Source: Company, MOSL
Exhibit 21: FCF to improve despite high capex plans
28.4 42.4 37.8 35.6
55.5 52.0 60.0
(13) (14) (10) (20) (22) (25) (25)
14 28 27
12
33 27 35
FY12 FY13 FY14E FY15 FY16 FY17E FY18E
CFO Capex FCF
Source: Company, MOSL
Mahindra & Mahindra
10 August 2016 10
Financials and Valuations
Income Statement (INR Million) Y/E March 2012 2013 2014 2015 2016 2017E 2018E Gross Op. Income 343,545 434,127 431,202 406,325 436,389 498,959 583,994 Change (%) 34.4 26.4 -0.7 -5.8 7.4 14.3 17.0 Total Expenditure 305,838 387,034 383,990 364,591 390,470 446,254 517,913 EBITDA 37,707 47,093 47,212 41,734 45,919 52,705 66,081 Margins (%) 11.0 10.8 10.9 10.3 10.5 10.6 11.3 Margins (%, incl MVML) 3.2 1.6 3.8 3.8 13.4 13.7 14.4 Depreciation 5,761 7,108 8,633 9,749 10,681 13,217 14,889 EBIT 31,946 39,985 38,579 31,985 35,238 39,489 51,192 Deferred Revenue Exp. 0 0 0 0 0 0 0 Int. & Finance Charges 1,628 1,912 2,592 2,143 1,580 1,226 1,226 Other Income 4,658 5,177 7,180 9,883 8,499 9,728 11,141 Non-recurring Expense 0 0 0 0 0 0 0 Non-recurring Income 1,083 906 528 3,357 687 0 0 Profit before Tax 36,059 44,156 43,694 43,082 42,845 47,991 61,107 Tax 7,270 10,943 6,111 8,478 10,799 12,470 14,666 Eff. Tax Rate (%) 20.2 24.8 14.0 19.7 25.2 26.0 24.0 Profit after Tax 28,789 33,214 37,584 34,604 32,046 35,521 46,441 Change (%) 8.1 15.4 13.2 -7.9 -7.4 10.8 30.7 % of Net Sales 8.4 7.7 8.7 8.5 7.3 7.1 8.0 Adj. Profit after Tax 27,924 32,532 37,129 31,908 31,532 35,521 46,441 Change (%) 8.5 16.5 14.1 (14.1) (1.2) 12.7 30.7 Adj. PAT (incl MVML) -1,273 -11,852 1,225 1,515 32,935 39,074 50,569
Balance Sheet (INR Million) Y/E March 2012 2013 2014 2015 2016 2017E 2018E Share Capital 2,945 2,952 2,952 2,957 2,963 2,963 2,963 Reserves 118,640 143,638 164,961 189,594 214,109 240,169 274,758 Net Worth 121,585 146,589 167,912 192,551 217,072 243,132 277,721 Deferred tax 5,271 6,149 8,897 9,797 12,475 12,475 12,475 Loans 31,738 42,792 48,787 46,615 40,861 40,861 40,861 Capital Employed 158,595 195,530 225,596 248,963 270,408 296,468 331,057
Gross Fixed Assets 74,986 89,500 107,961 117,385 142,955 173,610 198,610 Less: Depreciation 34,179 41,287 49,192 58,091 63,426 76,643 91,532 Net Fixed Assets 40,808 48,213 58,770 59,295 79,529 96,967 107,078 Capital WIP 10,000 10,000 12,284 21,788 15,655 10,000 10,000 Investments 103,105 118,335 113,799 131,382 135,204 143,947 151,447 Curr.Assets, L & Adv. 85,082 97,988 128,034 116,985 133,736 143,558 176,373 Inventory 23,584 24,198 28,036 24,376 26,879 31,738 37,199 Inventory Days 27 22 26 23 24 25 25 Sundry Debtors 19,884 22,084 25,098 25,580 25,121 30,468 35,711 Debtor Days 23 20 23 25 23 24 24 Cash & Bank Bal. 11,884 17,814 29,504 20,648 22,970 30,521 44,986 Loans & Advances 24,077 28,509 39,640 40,054 52,367 44,433 52,079 Others 5,653 5,384 5,756 6,328 6,399 6,399 6,399 Current Liab. & Prov. 80,399 79,006 87,291 80,486 93,715 98,003 113,841 Sundry Creditors 47,962 55,797 60,688 53,655 67,636 66,649 78,118 Creditor Days 56 51 55 52 61 53 53 Other Liabilities 13,985 4,154 5,863 6,143 5,964 5,964 5,964 Provisions 18,453 19,055 20,740 20,688 20,115 25,390 29,759 Net Current Assets 4,683 18,982 40,743 36,499 40,021 45,555 62,532 Application of Funds 158,595 195,530 225,596 248,963 270,408 296,468 331,057 E: MOSL Estimates (0) (0) (0) 0 0 0
Mahindra & Mahindra
10 August 2016 11
Financials and Valuations
Ratios
Y/E March 2012 2013 2014 2015 2016 2017E 2018E Basic (INR)
Fully diluted EPS 46.7 54.3 62.0 53.3 52.7 59.3 77.6 FD EPS (incl MVML) -2.1 -19.8 2.0 2.5 55.0 65.3 84.5 Consolidated EPS 51.2 60.9 72.7 47.8 53.6 73.2 98.7 Cash EPS 57.2 67.2 77.5 70.4 71.2 82.2 103.5 Book Value per Share 206.4 248.3 284.4 325.6 366.3 410.3 468.6 DPS 12.5 13.0 14.0 12.0 15.0 17.5 20.0 Payout (Incl. Div. Tax) % 29.7 26.8 25.7 24.5 26.3 33.1 29.7 Valuation (x)
P/E 572.2 26.3 22.2 17.1 Consolidated P/E 30.3 27.0 19.8 14.7 Cash P/E 20.6 20.3 17.6 14.0 EV/EBITDA 20.5 18.6 16.0 12.5 EV/Sales 2.3 2.1 1.8 1.5 Price to Book Value 4.4 4.0 3.5 3.1 Dividend Yield (%) 0.8 1.0 1.2 1.4 Profitability Ratios (%)
RoE 24.9 24.3 23.6 17.7 15.4 15.4 17.8 RoCE 20.3 19.2 18.7 14.2 12.6 12.9 15.1 ROIC 87.6 72.5 55.6 35.4 30.7 28.0 32.9 Turnover Ratios
Debtors (Days) 23 20 23 25 23 24 24 Inventory (Days) 27 22 26 23 24 25 25 Creditors (Days) 56 51 55 52 61 53 53 Working Capital (Days) 5 17 37 35 36 36 42 Asset Turnover (x) 2.0 2.0 1.8 1.5 1.5 1.5 1.6 Leverage Ratio
Debt/Equity (x) 0.3 0.3 0.3 0.2 0.2 0.2 0.1
Cash Flow Statement
(INR Million) Y/E March 2012 2013 2014 2015 2016 2017E 2018E OP/(Loss) before Tax 34,976 43,565 43,166 38,332 41,612 39,489 51,192 Int./Dividends Received -1,113 -2,043 -3,455 -3,723 -3,027 9,728 11,141 Depreciation & Amort. 5,761 7,108 8,633 -9,749 11,086 13,217 14,889 Direct Taxes Paid -7,432 -8,732 -8,942 -8,468 -9,279 -12,470 -14,666 (Inc)/Dec in Wkg. Capital -4,843 1,559 -2,126 15,802 14,393 2,016 -2,512 CF from Oper. Activity 27,350 41,457 37,277 32,195 54,785 51,980 60,044 Extra-ordinary Items 1,083 906 528 3,357 687 0 0 CF after EO Items 28,432 42,363 37,805 35,552 55,473 51,980 60,044 (Inc)/Dec in FA+CWIP -13,404 -13,893 -10,053 -20,226 -21,597 -25,000 -25,000 Free Cash Flow 13,945 27,564 27,224 11,969 33,189 26,980 35,044 (Pur)/Sale of Invest. -5,961 -9,416 -7,295 -4,005 -13,865 -8,743 -7,500 CF from Inv. Activity -19,365 -23,309 -17,348 -24,231 -35,461 -33,743 -32,500 Change in Net Worth 818 0 1,839 26 0 2,590 1,920 Inc/(Dec) in Debt 6,442 -1,534 1,465 -3,847 -9,500 0 0 Interest Paid -1,496 -2,015 -2,608 -2,419 -2,110 -1,226 -1,226 Dividends Paid -8,008 -8,670 -8,935 -9,609 -8,461 -10,539 -12,021 CF from Fin. Activity -2,244 -12,219 -8,239 -15,848 -20,071 -9,175 -11,326 Inc/(Dec) in Cash 5,741 5,930 11,689 -7,884 -747 9,062 16,217 Add: Beginning Balance 6,146 11,884 17,814 29,504 20,648 22,970 30,521 Closing Balance 11,884 17,814 29,504 21,788 20,069 32,200 46,906 E: MOSL Estimates
Mahindra & Mahindra
10 August 2016 12
Corporate profile Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Jun-16 Mar-16 Jun-15
Promoter 25.4 25.4 25.6
DII 18.1 18.1 18.3
FII 42.8 42.9 42.9
Others 13.7 13.5 13.1
Note: FII Includes depository receipts Source: Capitaline
Exhibit 3: Top holders Holder Name % Holding Life Insurance Corporation Of India Alongwith Its Various Schemes 11.5
Europacific Growth Fund 4.1 Government Of Singapore Alongwith Its Sub-Account 2.2 ICICI Prudential Life Insurance Company Limited - Alongwith Its Sub-Account 2.2
Dodge And Cox International Stock Fund 2.1
Source: Capitaline Exhibit 4: Top management
Name Designation
Anand G Mahindra Chairman & Managing Director
Keshub Mahindra Chairman Emeritus
Pawan Goenka Executive Director
Narayan Shankar Company Secretary
Source: Capitaline
Exhibit 5: Directors Name Name
Anupam Puri* Deepak S Parekh*
M M Murugappan* Nadir B Godrej*
R K Kulkarni* Vikram Singh Mehta*
Vishakha N Desai* S B Mainak
*Independent
Exhibit 6: Auditors Name Type
Deloitte Haskins & Sells Statutory
N I Mehta & Co Cost Auditor
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus EPS (INR)
MOSL forecast
Consensus forecast
Variation (%)
FY17 73.2 73.0 0.3
FY18 98.7 93.8 5.3
Source: Bloomberg
Company description M&M is the market leader in UV and tractors, with market share of over 40% in both segments. It also has presence into CVs, 3-wheelers and 2-wheelers segments. Also, Ssangyong, it subsidiary in South Korea is focused on SUV segment in global markets. Apart from core auto business, it has subsidiaries/ associates in various businesses like IT, NBFC, Auto ancillaries, hospitality, infrastructure etc.
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PRODUCT GALLERY
Mahindra & Mahindra
10 August 2016 14
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