India Equity Research Automobiles May 29, 2021
MAHINDRA & MAHINDRA
RESULT UPDATE
KEY DATA Rating BUY Strong showing; focus on RoE Sector relative Outperformer Price (INR) 846 12 month price target (INR) 1,089 M&M’s Q4FY21 EBITDA (INR19bn) continued to outdo expectations. Market cap (INR bn/USD bn) 1,052/14.5 We are not concerned about the perceived rise in capital investment Free float/Foreign ownership (%) 81.1/33.4 What’s Changed guidance for FY22–24 as it does not have a meaningful impact Target Price Rating/Risk Rating ⚊ INR60/share drop in surplus cash) and is guided by 18% RoE. Besides, part of capex is discretionary. Meanwhile, auto and farm subsidiaries QUICK TAKE (ex-SsangYong) reported profit with lower capital employed.
Above In line Below M&M continues to walk the talk on two key RoIC drags (refer to Profit Margins (Mis)perceptions and misfires): UVs and subsidiary losses. All in all, Revenue we maintain ‘BUY’ with an SoTP-based TP of INR1,089 (earlier Growth INR1,113) factoring in higher capital investments; our earnings Overall estimates and valuation multiple remain unchanged. FINANCIALS (INR mn) Q4FY21: Robust performance Year to March FY21A FY22E FY23E FY24E M&M’s reported revenue of INR133bn (up 48% YoY) beat our estimate by 10%. Revenue 4,45,744 5,69,343 6,38,616 7,24,961 EBITDA at INR19bn exceeded expectation by 4%. The FES segment’s revenue EBITDA 69,766 81,994 90,749 1,02,541 Adjusted profit 54,047 50,997 56,785 64,208 improved 60% YoY (led by volume growth of ~58% YoY) to INR50bn (EBIT margin at Diluted EPS (INR) 45.4 42.8 47.7 53.9 22%, up 437bps YoY). Automotive revenue improved ~43% YoY, led by higher EPS growth (%) 24.1 (5.6) 11.3 13.1 realisation (BSVI, better product mix) of 19% YoY and volume growth. EBIT margin RoAE (%) 15.5 13.6 13.4 13.4 came in at 5%, improved by 90bps YoY. A sharp spike in raw material prices coupled P/E (x) 18.7 19.8 17.8 15.7 with persistent supply challenges (in auto) could weigh on near-term margins; the EV/EBITDA (x) 15.4 12.8 11.3 9.4 Dividend yield (%) 0.5 0.6 0.6 0.6 impact thereof would be mitigated by a better product mix and pricing action, if any. Guiding lights: 15–20% revenue CAGR aspiration and 18% RoE PRICE PERFORMANCE Capex guidance has been upped by INR30bn (for EVs) to INR120bn over FY22–24
950 53,000 (last three years at INR150bn). M&M also guided for INR15bn in auto and farm 845 48,800 subsidiaries, and INR35bn for other businesses (including potential gems). 740 44,600 Management committed that cash flows of the auto and tractor business would be 635 40,400 be largely utilised thereof. Investment in group companies will be funded by 530 36,200 425 32,000 dividend/other asset monetisation. If capex or investment needs are not justifiable May-20 Aug-20 Nov-20 Feb-21 by underlying growth drivers and ROE, management will not pursue theme. 15-20% MM IN Equity Sensex revenue CAGR would be driven by auto, international subsidiaries (low base).
Outlook and valuation: Re-rating potential exists; maintain ‘BUY’ Explore: As the RoIC drags gets addressed, the true franchise value of the tractor and LCV business would be recognised. Furthermore, RoIC drags will start contributing to cash flow post-restructuring. Maintain ‘BUY/SO’ with an SoTP-based TP of INR1,089. M&M is trading at FY22/23E PER of 15.2x/13.5x (ex-listed subsidiaries).
Financial model Podcast Financials Year to March Q4FY21 Q4FY20 % Change Q3FY21 % Change Net Revenue 1,33,382 90,047 48.1 1,40,565 (5.1) EBITDA 19,605 12,275 59.7 23,856 (17.8) Adjusted Profit 10,411 10,778 (3.4) 17,019 (38.8) Video Corporate access Diluted EPS (INR) 8.7 9.0 (3.4) 14.3 (38.8)
Chirag Shah +91 (22) 6623 3367 [email protected]
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MAHINDRA & MAHINDRA
Financial Statements
Income Statement (INR mn) Balance Sheet (INR mn) Year to March FY21A FY22E FY23E FY24E Year to March FY21A FY22E FY23E FY24E Total operating income 4,45,744 5,69,343 6,38,616 7,24,961 Share capital 5,974 5,974 5,974 5,974 Gross profit 1,43,979 1,79,352 1,97,398 2,23,609 Reserves 3,47,239 3,92,599 4,43,466 5,01,460 Employee costs 32,428 38,146 42,787 48,572 Shareholders funds 3,53,212 3,98,573 4,49,440 5,07,433 Other expenses 41,785 59,212 63,862 72,496 Minority interest 0 0 0 0 EBITDA 69,766 81,994 90,749 1,02,541 Borrowings 72,143 72,143 72,143 72,143 Depreciation 23,624 26,252 29,142 32,622 Trade payables 1,06,438 1,09,189 1,22,474 1,39,034 Less: Interest expense 3,957 3,000 3,000 3,000 Other liabs & prov 68,265 71,393 67,817 75,027 Add: Other income 11,973 14,803 16,604 18,124 Total liabilities 6,19,110 6,71,303 7,32,880 8,15,692 Profit before tax 54,158 67,546 75,212 85,043 Net block 1,81,325 1,95,073 2,05,932 2,13,310 Prov for tax 13,183 16,549 18,427 20,836 Intangible assets 0 0 0 0 Less: Other adj (31,745) 0 0 0 Capital WIP 0 0 0 0 Reported profit 40,974 50,997 56,785 64,208 Total fixed assets 1,81,325 1,95,073 2,05,932 2,13,310 Less: Excp.item (net) (13,072) 0 0 0 Non current inv 1,77,978 1,89,478 1,97,478 2,05,478 Adjusted profit 54,047 50,997 56,785 64,208 Cash/cash equivalent 52,279 71,209 1,02,058 1,54,803 Diluted shares o/s 1,192 1,192 1,192 1,192 Sundry debtors 22,012 32,586 36,551 41,493 Adjusted diluted EPS 45.4 42.8 47.7 53.9 Loans & advances 19,399 14,342 15,763 17,528 DPS (INR) 4.5 4.7 5.0 5.2 Other assets 1,29,509 1,32,006 1,38,490 1,46,472 Tax rate (%) 24.3 24.5 24.5 24.5 Total assets 6,19,110 6,71,303 7,32,880 8,15,692
Important Ratios (%) Free Cash Flow (INR mn) Year to March FY21A FY22E FY23E FY24E Year to March FY21A FY22E FY23E FY24E Gross profit margin (%) 32.3 31.5 30.9 30.8 Reported profit 40,974 50,997 56,785 64,208 Staff cost % sales 7.3 6.7 6.7 6.7 Add: Depreciation 23,624 26,252 29,142 32,622 Other expenses % sales 9.4 10.4 10.0 10.0 Interest (net of tax) 1,630 2,265 2,265 2,265 EBITDA margin (%) 15.7 14.4 14.2 14.1 Others 32,707 (14,068) (15,869) (17,389) Net profit margin (%) 12.1 9.0 8.9 8.9 Less: Changes in WC (3,039) (1,183) (1,159) 10,130 Revenue growth (% YoY) (0.6) 27.7 12.2 13.5 Operating cash flow 95,896 64,263 71,163 91,835 EBITDA growth (% YoY) 9.9 17.5 10.7 13.0 Less: Capex (35,856) (40,000) (40,000) (40,000) Adj. profit growth (%) 24.1 (5.6) 11.3 13.1 Free cash flow 60,040 24,263 31,163 51,835
Assumptions (%) Key Ratios Year to March FY21A FY22E FY23E FY24E Year to March FY21A FY22E FY23E FY24E GDP (YoY %) (6.0) 7.0 6.0 6.0 RoE (%) 15.5 13.6 13.4 13.4 Repo rate (%) 3.5 3.5 4.0 4.0 RoCE (%) 14.5 15.7 15.8 16.0 USD/INR (average) 75.0 73.0 72.0 72.0 Inventory days 53 46 44 44 Tractor - dom. vol. (% 18.0 8.0 5.0 5.0 Receivable days 21 18 20 20 YoY) Payable days 108 101 96 95 UV - dom. vol. (% YoY) 8.0 8.0 8.0 8.0 Working cap (% sales) 2.4 2.3 2.4 0.8 LCV - dom. vol. (% YoY) (20.0) 15.0 15.0 15.0 Gross debt/equity (x) 0.2 0.2 0.2 0.1 M&M Total vol (nos) 7,06,779.0 8,89,919.2 10,03,421. 11,27,965. Net debt/equity (x) 0.1 0 (0.1) (0.2) 0 1 Interest coverage (x) 11.7 18.6 20.5 23.3 % Growth (9.1) 25.9 12.8 12.4 EBITDA/vehicle 98,709.4 92,136.9 90,439.9 10,00,000. 0 Valuation Drivers Year to March FY21A FY22E FY23E FY24E Valuation Metrics EPS growth (%) 24.1 (5.6) 11.3 13.1 Year to March FY21A FY22E FY23E FY24E RoE (%) 15.5 13.6 13.4 13.4 Diluted P/E (x) 18.7 19.8 17.8 15.7 EBITDA growth (%) 9.9 17.5 10.7 13.0 Payout ratio (%) 13.1 11.1 10.4 9.7 Price/BV (x) 2.9 2.5 2.2 2.0 EV/EBITDA (x) 15.4 12.8 11.3 9.4 Dividend yield (%) 0.5 0.6 0.6 0.6 Source: Company and Edelweiss estimates
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MAHINDRA & MAHINDRA
Q4FY21 analyst call: Key Highlights
Aiming for 15% to 20% revenue growth over nest 5 years. This is more of a direction rather than guidance. Growth drivers will be auto – low base and international auto and far business. Given the consolidation phase is behind, they will start pursuing growth also.
Robust cash flow, INR35bn is due to working capital release, and unlikely to repeat.
Demand buoyancy continued in the Auto and Tractor segment in Q4FY21.
In automotive business, reduced fixed cost by INR9bn in last three years.
Tractor volumes grew by 58% YoY on the back of a robust rural story. Intuitively, high reservoir levels and strong rural momentum should ensure FY22 demand is stable. Expects Tractor sector to grow 7-8% CAGR over next 3-5 years.
Strong new (including major upgrade) product pipeline by 2026: 1) SUVs – 9; 2) LCVs – 14.
Continue to see strong bookings in SUVs.
o Thar – 5-7k per month – waiting period 10 months.
o XUV300- 6k per month – 48% for petrol.
o Bolero- 10k per month
XUV700 launch – couple of weeks of delay due to lockdown.
Capital allocation decisions are almost complete; so the company will soon be able to turn its focus on driving growth. Clarity shared on the categorisation of key subsidiaries in A, B, and C category in the presentation.
Core capex spend for next three years will be INR120bn (starting FY22) versus INR90bn guided earlier. INR30bn increase is due to spend towards EV. M&M also guided for INR5bn of investments – INR15bn in auto and farm subsidieries and balance in group companies. The funding in group companies will be via dividend and other monitisation of assets. Focus on 18% ROE for investment stays. Subsidiary classification and capital allocation On a consolidated level, losses from international subsidiaries have reduced from INR34,290mn in FY20, to INR23,580mn in FY21 and expects INR3,000mn in FY22. By FY23, these subsidiaries will be profit making and hence move towards growth trajectory.
Category A – have a clear path to 18% RoE (MAgNA, Peugeot Motorcycles, Erkunt).
Category B – no clear path to RoE, but are a clear strategic benefit (Mitsubishi, Sampo Rosenlew, Hisarlar).
Category C – No clear path to 18% RoE and no strategic benefit. So M&M will exit from these (SYMC, GippsAero, GenZe, MFCS).
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MANA, Automobili Pininfarina are currently sitting between Category A and B as M&M is still deciding their status. It shall communicate the same in due course.
During Q4FY21, Erkunt and Hisarlal has been categorized.
For all these companies, M&M has set a six-month milestones to regularly monitor their progress. Supply Constraints Affected twice – BSVI and now- mainly due to reliance on single supplier.
Chips 3 types of issue - 1) ECU, which comes in engine; 2) Airbags and 3) ABS.
Affected by engine ECU most.
Have prioritized products due to supply shortages (given preference to Thar, XUV300, etc).
Expects things to improve from July, August.
Many learnings from last year– like picking it up early signal of supply. Putting fundamental processes and systems. Tracking global supply demand trend so that can stock in advance. Capital allocation 3 categorization complete.
International farm and auto business PAT loss will be ~INR3bn in FY22. And expect it to breakeven in FY23.
Key farm subsidiaries – many has broken even, Magna losses have reduced (expect good performance going ahead). Shut down GENZe.
Auto – Pininfarina – Battista (launch in early 2022) will drive performance; MANA turnaround delayed due to Covid Farm equipment K2 platform – 4 geographies, 4 platforms 37 models by 2025.
Farm equipment – looking for in-house manufacturing; saw 45% growth
FES global business – from consolidation to growth.
Capex
Total INR120bn – 1) INR60bn auto; 2) INR30bn for EV, and; balance INR30bn for tractors. And investment of INR50bn over F22-F24.
Earlier had INR150bn for prior 3 years and then it was INR90bn for next 3 years, this is increased by 3k for EV
Investment requirement was never given. It is far lower than what it was in the past
INR50bn Investment - in auto and farm subs – RS15bn – group companies INR35bn (to create USD6bn value)
Investment in group companies will come from dividend and other income stream from group companies.
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Tracking ROE and profit growth.
EV – talks around partnership as it is essential.
These are directional numbers, if returns are not there, investment will not happen.
Do not expect negative FCF, may be closer to neutral.
Also the ford JV investment is going into EV.
EV investment is primary to product portfolio.
Planning EV version of XUV700 and XUV300. Tractor outlook for FY22
Low single-digit for industry, aiming to gain MS as lost last year due to supply chain.
Rural is more affected but are seeing change in sentiment in last few days. Tractor buying has started to pick up.
Room for 8% CAGR exists.
Looking at adding capacities in Swaraj. Auto fixed cost (FC) reduction of INR9bn
Driven by 1) manufacturing fixed expenses ~40%; 2) Sales and marketing ~70% and; 3) G&A expenses by ~30%.
Sales and MC – FC are brand spend, travel, conferences etc.
Combination of covid and digital evolution – many will stay.
When product proposition right – no such spend required.
Negligible spend in Thar marketing – did not run a mass media commercial on Thar, though it was ready. Tractor implements
Aim is to deliver strong double digit growth.
Three broad categories: 1) Commodities – for eg Cultivators – where right cost sheet matters; 2) evolved category like Rotavators, Harvestors 3) Pioneering products- rice transplanters. For instance in China where the rice output is less than India, annual size is 100K units, whereas in India annual demand is 3K units.
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Trend in auto and FES subsidiary financials*
Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Consolidated - Automotive (INR mn) Revenue 1,46,596 1,61,282 1,35,478 1,20,588 77,067 97,335 65,086 67,256 86,062 85,045 EBIT 3,163 6,754 1,121 (3,675) 4,137 (4,921) (14,764) 3,885 5,766 5,051 Margin (%) 2.2 4.2 0.8 (3.0) 5.4 (5.1) (22.7) 5.8 6.7 5.9 Capital employed 1,69,021 1,65,545 1,75,249 1,81,048 1,71,025 1,81,041 1,90,250 1,53,749 1,28,018 1,26,574 MM + MVML - Automotive (INR mn) Revenue 79,148 1,02,217 79,858 68,928 74,238 55,058 20,395 63,565 83,111 78,581 EBIT 4,608 9,002 5,180 3,973 5,417 2,253 (5,837) 4,117 6,141 3,900 Margin (%) 5.8 8.8 6.5 5.8 7.3 4.1 (28.6) 6.5 7.4 5.0 Capital employed 99,787 93,366 1,06,517 1,11,457 1,08,223 1,22,460 1,33,988 1,12,243 1,13,291 1,11,997 Auto Subs (Conso Less MM + MVML) (INR mn) Revenue 67,449 59,065 55,620 51,660 2,829 42,277 44,692 3,691 2,951 6,463 EBIT (1,445) (2,248) (4,059) (7,648) (1,281) (7,174) (8,927) (232) (375) 1,151 Margin (%) (2.1) (3.8) (7.3) (14.8) (45.3) (17.0) (20.0) (6.3) (12.7) 17.8 Capital employed 69,235 72,179 68,732 69,592 62,802 58,582 56,262 41,506 14,727 14,576 Consolidated - FES (INR mn) Revenue 57,730 45,218 60,779 53,699 54,566 42,088 49,069 64,782 68,148 65,926 EBIT 6,040 1,308 7,664 6,463 6,341 2,299 6,134 11,834 12,369 11,241 Margin (%) 10.5 2.9 12.6 12.0 11.6 5.5 12.5 18.3 18.2 17.1 Capital employed 68,078 76,620 73,636 81,712 64,115 58,348 49,372 41,021 32,622 38,586 MM+MVML - FES (INR mn) Revenue 46,338 32,059 43,822 36,315 42,778 31,110 33,408 48,354 52,815 49,755 EBIT 8,881 5,187 8,447 7,019 8,309 5,488 6,823 11,795 12,359 10,950 Margin (%) 19.2 16.2 19.3 19.3 19.4 17.6 20.4 24.4 23.4 22.0 Capital employed 41,861 45,483 45,778 53,369 38,935 37,645 25,304 22,547 18,323 25,120 FES Subs (Conso Less MM + MVML) (INR mn) Revenue 11,392 13,159 16,957 17,384 11,788 10,978 15,661 16,429 15,332 16,171 EBIT (2,841) (3,879) (784) (556) (1,968) (3,189) (689) 38 10 291 Margin (%) (24.9) (29.5) (4.6) (3.2) (16.7) (29.1) (4.4) 0.2 0.1 1.8 Capital employed 26,217 31,137 27,858 28,343 25,180 20,703 24,068 18,475 14,299 13,466 Source: Company, Edelweiss Research *Consolidated financials for the auto division have been restated for Q3FY20, Q2FY21 and Q3FY21, as M&M has classified SsangYong in discontinued operations. Losses from discontinued operations: Q3FY20 – INR9.3bn, Q2FY21 – INR6.4bn, Q3FY21 – INR9.9bn and Q4FY21 – INR4.9bn
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Volume assumptions
FY20 FY21E FY22E FY23E Total Sales 7,77,953 7,06,779 8,89,919 10,03,421 % YoY (17.2) (9.1) 25.9 12.8 PVs 1,87,007 1,57,249 2,39,109 2,99,347 % YoY (26.5) (15.9) 52.1 25.2 CVs 1,99,101 1,56,126 2,10,004 2,35,205 % YoY (20.0) (21.6) 34.5 12.0 3 Wheeler 62,187 20,525 30,788 34,482 % YoY (6.8) (67.0) 50.0 12.0 Tractors 2,91,901 3,43,833 3,71,340 3,89,907 % YoY (7.8) 17.8 8.0 5.0 Exports 37,757 29,046 38,679 44,481 % YoY (27.8) (23.1) 33.2 15.0 Source: Company, Edelweiss Research
SoTP
Basis of Value/Mcap M&M holding CMP Value/share valuation (INR mn) (%) (INR) on CMP (INR) Investment in listed companies Tech Mahindra CMP 2,62,911 26.7 1,026 237 MMFSL CMP 50,593 51.2 160 46 Mahindra Lifespace Developers CMP 13,802 51.1 522 12 Mahindra Holidays and Resorts CMP 23,372 67.5 260 21 Mahindra CIE CMP 12,597 17.3 193 11 Swaraj Engines CMP 6,180 33.2 1,530 6 Mahindra Logistics CMP 22,160 58.8 530 20 Sub-total 354 Investments valued at 30% discount 248 Core EPS (Sept2022E) 35 P/E 22 Core business 769 Cash per share 73 Target price (INR) 1,089 Source: Edelweiss Research
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Trend in auto and FES volume Domestic volume mix trend
300 100 26 25.0 30 34 240 80 43 40 40 38 40 40 51 46 47 8 2.0 7 70 180 60 8 8 6 10 9 9 6 5 (21.0) 30 31 1 5
Mix(%) 29 (% YoY) (% 40 25 25 120 27 27 28 28 27 25 21 ( '000 '000 ( units) (44.0) 0 20 17 60 (67.0) 32 35 27 28 25 29 25 24 24 22 25 27 13
0 (90.0) 0
Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21
Q4FY18 Q3FY20 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Auto Tractors Auto (%YoY) Tractor(%YoY) PV CV 3W Tractor
Source: Company, SIAM, Edelweiss Research Source: Company, SIAM, Edelweiss Research Trend in realizations Segmental EBIT margin trend
700 20 620 10 540
0 (%) 460
-10 (INR''00 per(INR''00 unit) 380 -20
300 -30
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Q4FY21
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21 Q4FY21
Auto(M&M + MVML) FES Auto (M&M+MVML) FES
Source: Company, SIAM, Edelweiss Research Source: Company, SIAM, Edelweiss Research
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Quarterly snapshot
Year to March Q4FY21 Q4FY20 % change Q3FY21 % change FY21 FY22E FY23E Net Revenues 1,33,382 90,047 48.1 1,40,565 (5.1) 4,45,744 5,69,343 6,38,616 Raw material 92,255 57,898 59.3 96,292 (4.2) 3,01,766 3,89,991 4,45,972 Staff costs 7,964 7,127 11.7 8,841 (9.9) 32,428 38,146 42,787 Other expenses 13,559 12,748 6.4 11,576 17.1 41,785 59,212 67,055 Total expenditure 1,13,777 77,773 46.3 1,16,709 (2.5) 3,75,979 4,87,348 5,55,814 EBITDA 19,605 12,275 59.7 23,856 (17.8) 69,766 81,994 82,802 Depreciation 5,899 6,172 (4.4) 6,043 (2.4) 23,624 24,472 25,662 EBIT 13,706 6,103 124.6 17,814 (23.1) 46,142 57,523 57,140 Less: Interest Expense 971 359 170.8 1,039 (6.6) 3,957 3,000 3,000 Add: Other income 1,178 3,155 (62.7) 5,618 (79.0) 11,973 14,803 16,604 Add: Exceptional items (8,399) (35,776) (12,140) (31,745) - - Profit before tax 13,913 8,899 56.3 22,393 (37.9) 22,413 69,326 70,744 Less: Provision for Tax 3,888 5,673 (31.5) 4,944 (21.4) 13,183 16,985 17,332 Reported Profit 1,625 (32,550) NA 5,309 (69.4) 9,229 52,341 53,412 Adjusted Profit 10,411 3,226 222.7 17,019 (38.8) 22,302 52,341 53,412 No. of Diluted shares outstanding 1,107 1,107 - 1,107 - 1,107 1,107 1,107 Adjusted Diluted EPS 9.40 2.91 222.7 15.37 (38.8) 20 47 48 As a % of total revenues Raw material 69.2 64.3 68.5 67.7 68.5 69.8 Staff costs 6.0 7.9 6.3 7.3 6.7 6.7 Other expenses 10.2 14.2 8.2 9.4 10.4 10.5 EBIDTA 14.7 13.6 17.0 15.7 14.4 13.0 Net profit 7.8 3.6 12.1 5.0 9.2 8.4 Tax rate (% PBT) 31.3 63.7 22.1 58.8 24.5 24.5 Source: Company, Edelweiss Research
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Company Description Mahindra & Mahindra (M&M) operates through various segments—automotive (sales of UVs/CVs and 3Ws, spare parts and related services); farm equipment (tractors, spare parts and related services); financial services (services related to financing, leasing and hire purchase of automobiles and tractors); steel trading & processing; infrastructure; hospitality, IT services and telecom
It also acquired majority (~75%) stake in Korea-based Ssangyong Motors Company in FY11 to become a global SUV company.
Investment Theme Key reasons for M&M losing market share in UVs in recent years are: (a) failure to cash in on the strong demand for compact SUVs & crossovers; and (b) subdued volume performance of it launches. However, we expect this business to get back on track given the company's strong focus on addressing product gaps and refreshes & petrol variants launch across its portfolio. Moreover, the tractor business is in a sweet spot and well placed to benefit from robust industry demand and sustain market share gains, riding new launches and network expansion.
Key Risks Losses in unlisted subsidiaries: M&M has ventured into businesses like 2Ws, etc., and is incurring losses at operational level. In the event of failure to turn around the business, the company might have to infuse more capital in drag performance of its core business.
Managing a complex group structure: M&M is a conglomerate with interests in automotive, farm equipment, real estate, tech services, and hospitality, among others. Managing this complex structure could divert focus from the core business and could pose execution risks.
UV market share: M&M needs to realign itself with the changing customer profile. With limited success of its recent launches – Marazzo, Alturas G4, it become critical for M&M to get its new launches right and start gaining market share.
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Additional Data Management Holdings – Top 10* Chairman Anand Mahindra % Holding % Holding MD & CEO Dr Pawan Goenka LIC 8.68 Kuwait Invst 1.39 First State 3.68 Govt Pension 1.38 Dep MD & CFO Dr Anish Shah SBI Funds 2.89 NPS Trust 1.28 Other ICICI Pru 2.41 Republic of Sin 1.16 Auditor E&Y ICICI Pru Life 1.54 SBI Life 1.13
*Latest public data
Recent Company Research Recent Sector Research Date Title Price Reco Date Name of Co./Sector Title Capital allocation at forefront ; In line; model cycle hope stays; 10-Feb-21 928 Buy 27-May-21 Eicher Motors Company Update Result Update Capital allocation at forefront; Improved performance; hurdles 05-Feb-21 866 Buy 22-May-21 Amara Raja Result Update remain; Result Update About (mis)perceptions and misfires Strong show; conservative 28-Jan-21 780 Buy 18-May-21 Tata Motors ; Company Update guidance; Result Update
Rating Interpretation Daily Volume 40 1000 TP 873 32 850 TP 721 TP 700 617 TP 24 (INR) 559
550 (Mn) 16
400 8 250 May-18 Nov-18 May-19 Nov-19 May-20 Nov-20 0 MM IN Equity Buy Hold Reduce May-18 Nov-18 May-19 Nov-19 May-20 Nov-20
Source: Bloomberg, Edelweiss research Source: Bloomberg
Rating Distribution: Edelweiss Research Coverage Rating Rationale
Buy Hold Reduce Total Rating Expected absolute returns over 12 months
Rating Distribution* 170 57 17 245 Buy: >15%
>50bn >10bn and <50bn <10bn Total Hold: >15% and <-5%
Market Cap (INR) 207 46 3 256 Reduce: <-5% *1 stocks under review
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