Investor's Eye-Feb14 14.Pmd
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Visit us at www.sharekhan.com February 14, 2014 Index Stock Update >> Mahindra & Mahindra Stock Update >> State Bank of India Stock Update >> Eros International Stock Update >> Dishman Pharmaceuticals & Chemicals Sector Update >> Telecommunications For Private Circulation only Sharekhan Ltd, Regd Add: 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai – 400042, Maharashtra. Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Regn. Nos. BSE-Cash-INB011073351 ; F&O-INF011073351 ; NSE – INB/INF231073330; CD - INE231073330 ; MCX Stock Exchange: INB/INF-261073333 ; CD - INE261073330 ; United Stock Exchange: CD - INE271073350 ; DP-NSDL-IN-DP-NSDL- 233-2003 ; CDSL-IN-DP-CDSL-271-2004 ; PMS-INP000000662 ; Mutual Fund-ARN 20669 ; Commodity trading through Sharekhan Commodities Pvt. Ltd.: MCX-10080 ; (MCX/TCM/CORP/0425) ; NCDEX -00132 ; (NCDEX/TCM/CORP/0142) ; NSEL-12790 ; For any complaints email at [email protected]; Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and Do’s & Don’ts by MCX & NCDEX and the T & C on www.sharekhan.com before investing. investor’s eye stock update Mahindra & Mahindra Reco: Buy Stock Update Tractors firing; auto business to catch up CMP: Rs903 Company details Key points Price target: Rs1,122 M&M posted a double-digit growth in earnings in Q3FY2014 on the back of a Market cap: Rs55,590 cr robust operating performance (due to an improved product mix and cost control initiatives) even as the revenues remained flat. The margin improved for 52 week high/low: Rs1,026/742 both the automotive and the tractor segments. NSE volume: 8.7 lakh (no. of shares) The tractor segment is expected to maintain a double-digit growth in FY2015 BSE code: 500520 on the back of strong demand drivers (increased in the rural income and a labour shortage which encourages mechanisation). In the automotive business NSE code: M&M the volume growth could turn positive aided by the low base effect, demand Sharekhan code: M&M revival and the launch of compact UV models. Also, the management expects Free float: 46.0 cr to sustain the margin due to the continued improved mix and benign (no. of shares) commodity prices. Shareholding pattern We have maintained our Buy recommendation with a SoTP-based price target for M&M at Rs1,122. M&M has a strong rural play and has shown resilience in Public & Others the challenging macro economic environment. M&M remains our preferred Promoters Bodies 14% pick in the automotive space. 25% corporate 5% Institutions Foreign 16% 40% Price chart 1050 Results Rs cr 1000 Particulars* Q3FY14 Q3FY13 YoY % Q2FY14 QoQ % 950 Revenues 10,241.6 10,242.6 0.0 8,660.4 18.3 900 Total expenses 8,709.1 8,863.1 -1.7 7,406.0 17.6 850 EBITDA 1,532.5 1,379.5 11.1 1,254.4 22.2 800 Other income 97.5 75.8 28.7 362.8 -73.1 750 Depreciation 223.5 205.4 8.8 224.4 -0.4 Interest 88.3 72.5 21.9 89.2 -0.9 Jun-13 Oct-13 Feb-14 Feb-13 Apr-13 Dec-13 Aug-13 PBT 1,318.2 1,177.4 12.0 1,303.6 1.1 Price performance Tax 318.1 262.5 21.2 275.9 15.3 PAT recurring 1,000.1 914.9 9.3 1,027.6 -2.7 (%) 1m 3m 6m 12m Reported PAT 1,000.1 914.9 9.3 1,027.6 -2.7 Absolute 2.1 1.3 3.8 2.6 EPS 16.2 14.9 16.7 EBITDA margin (%) 15.0 13.5 150 BPS 14.5 50 BPS Relative 6.6 1.0 -1.7 -2.1 to Sensex Eff tax rate (%) 24.1 22.3 21.2 *(MM+MVML) Sharekhan 2 February 14, 2014 Home Next investor’s eye stock update Q3FY2014 segmental performance commodity prices and improved mix (a higher proportion of Automotive segment tractors and cost control initiatives) enabled M&M to improve the margin. With benign commodity prices and cost control In Q3FY2014, the Mahindra and Mahindra (M&M) initiatives, we expect M&M’s margin to remain in the high automotive segment’s revenues declined by 11% year on trajectory. year (YoY) on the back of a similar decline in the volumes. The segment’s realisation remained flat YoY. Despite the Automotive segment to recover in FY2015 on low base, falling revenues, the margin improved on both a year-on- improved macro environment and new product launches year (Y-o-Y) as well as sequential basis on the back of M&M’s automotive volumes have been under pressure with cost control initiatives. the volumes declining 10% YoY in the YTD FY2014 period. Farm equipment segment This is attributable to a decline in the industry volumes and M&M’s relatively lower presence in the growing For Q3FY2014, the revenues of the farm equipment compact utility vehicle (UV) category. M&M expects the segment grew by 21% YoY, mainly on the back of a similar automotive volumes to recover in FY2015 on the back of volume growth. The realisation remained flat YoY. Given a low base created by the current slowdown and an the strong volume growth and the consequent operating improvement in the macro economic conditions. Further, leverage, the margin improved both a Y-o-Y and quarter- new product launches (in Q4FY2015) would also lead to a on-quarter (Q-o-Q) bases. volume recovery. M&M is expecting a single-digit growth Segmental performance Rs cr in FY2015. We have factored a volume growth of 4% for Particulars Q3 Q3 YoY Q2 QoQ the M&M automotive segment in our estimate. FY14 FY13 % FY14 % Automotive division Ssangyong operating performance improves; to work Volumes 128039 144466 -11.4 116535 9.9 on joint product development with M&M Revenues 6161.0 6876.1 -10.4 5554.7 10.9 M&M’s Korean subsidiary Ssangyong Motor Corporation PBIT 732.8 766.9 -4.4 624.0 17.4 (SYMC) volumes jumped by 20% YoY in CY2013, registering PBIT margin (%) 11.9 11.2 11.2 volumes of 1,45,649 units. SYMC has received an Farm equipment division encouraging response from the new ‘Korando’ which has Volumes 78419 64800 21.0 59264 32.3 boosted sales in both the domestic and the export Revenues 4098.7 3404.0 20.4 3147.6 30.2 markets. SYMC’s financial performance improved PBIT 721.4 527.4 36.8 534.5 35.0 significantly given the surge in the volumes and cost PBIT margin (%) 17.6 15.5 17.0 control efforts. SYMC posted a second consecutive quarter Others of profits Q3CY2013 (reporting a profit of 1.5 billion Korean Revenues 5.5 14.4 -62.0 5.9 -7.9 Won). The losses significantly reduced to 14 billion Korean PBIT 1.2 1.7 -32.0 0.1 875.0 Won in the January 2013 to September 2013 period as PBIT margin (%) 21.4 11.9 2.0 against 66 billion Korean Won in the same period last year. Further, M&M-SYMC are working on a joint product development enabling synergistic benefits for both the Tractor segment demand to remain strong companies. The tractor industry has outperformed the automotive Valuation demand in the year to date (YTD) FY2014 period. As against the subdued automotive volumes, the tractor industry The tractor demand is expected to grow in double digits registered a growth of 22% during YTD FY2014. With strong in FY2015 on the continued strong demand drivers (an demand drivers (an increased crop output leading to a increased rural income and the labour shortage). Further, higher rural income and labour shortages) intact, the the automotive volumes would recover in FY2015 on the industry is expected to grow in double digits in FY2015 as back of the low base effect, improved macro economic well. M&M expects the tractor industry to grow by about conditions and new product launches. The margin is 10% in FY2015. expected to remain high given the improved mix, benign commodity prices and cost control efforts. We have Margin to remain in high trajectory given the improved broadly maintained our earnings estimates for FY2014 and mix and benign commodity FY2015 for the core business. Given M&M’s strong rural M&M has been able to improve the margin despite the focus, we maintain our Buy recommendation with a SoTP- subdued revenues. During Q3FY2014, M&M’s margin improved based price target of Rs1,122. M&M remains our preferred by 150 basis points YoY despite the flat revenues. The soft pick in the automotive space. Sharekhan 3 February 14, 2014 Home Next investor’s eye stock update Valuations Particulars* FY2011 FY2012 FY2013 FY2014E FY2015E Total income (Rs cr) 23,460.3 31,370.3 38,356.6 38,362.5 41,344.8 Growth (%) 27.6 33.7 22.3 0.0 7.8 EBITDA (Rs cr) 3,454.3 4,150.4 5,329.3 5,623.0 5,888.1 EBITDA margin (%) 14.7 13.2 13.9 14.7 14.2 PAT (Rs cr) 2,662.1 2,888.8 3,543.8 3,807.7 3,794.4 Growth (%) 27.5 8.5 22.7 7.4 -0.3 FD EPS (Rs) 41.4 47.1 57.7 61.8 61.6 P/E (x) 21.8 19.2 15.6 14.6 14.7 P/B (x) 5.4 4.5 3.7 3.0 2.5 EV/EBIDTA (x) 16.3 13.8 10.6 9.8 9.0 RoE (%) 24.7 23.6 23.7 20.3 16.8 RoCE (%) 27.5 23.9 26.0 23.0 20.3 *(MM+MVML) SoTP Particulars Remarks Core business (MM+MVML) 801 At 13x FY2015 earnings Key subsidiaries Tech Mahindra 207 Bloomberg consensus price target M&M FSL 103 2x its FY2015 book value Mahindra Lifespace 12 Market cap Mahindra Holiday Resort 24 Market cap Systech 16 Price offered to CIE Ssangyong 96 Market cap Value of subsidiaries before discount 459 After holdings 30% discount 322 Price target 1,122 Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.