Mahindra & Mahindra Ltd- 1QFY20- Slowdown hurting the profitability

Mahindra & Mahindra Ltd- 1QFY20- Slowdown hurting the profitability

Dated: 8th August 2019

Quarterly Performance:

Key Highlights:

  1. Net sales were at Rs 128,050 mn, a decline of 4% YoY. The domestic auto sales volume for the quarter was 5% down YoY whereas the exports were down 20% YoY. The export sales were impacted due to the South Asia region which declined 61% YoY. The domestic tractor volumes were down 15% YoY whereas exports have shown a muted growth of 1% YoY.
  2. EBITDA stood at Rs 17,940 mn, a decline of 15% YoY. The operating performance was impacted due to subdued sales and also due to increased advertising & marking expenses.
  3. The operating margins were at 14% vs 15.8% in 1QFY19.
  4. Net profit before the exceptional income was at Rs 9,180 mn for the quarter, a decline of 26% YoY.
  5. The Company reported an exceptional income of Rs 13,600 mn for the quarter which increased the PAT by 80% YoY at Rs 22,600 mn. This was on account of gain on sale of shares by M&M benefit trust and gain on buy-back by an associate/transfer of certain long-term investments.

Management Commentary:

  • Management expects some revival in the tractor industry post-August-19. They have guided for flattish sales for FY20E. They expect a 6-8% sales volume growth for the tractor industry in the coming few months. Good monsoons, an uptick in sowing and low base effect in the 2nd half of the year could provide further upside.
  • Dealer inventory is under control. Company is only at around 2,000-3,000 tractors higher than the desired level of inventory.
  • The management has refrained from providing any industry guidance. Auto industry might see some upsides on account of decent monsoons, favourable commodity prices and pre-buying in the latter part of the year. The rate cut transmission by banks, stimulus in the form of GST rate cut and supportive govt. policies would further help the industry according to M&M management.
  • Post-BS-VI, the small engine vehicle (1.2-litre engines) would 100% be petrol variant. They expect the diesel & petrol mix to be 50:50 post-BS-VI launch.
  •  M&M took a marginal price increase in both auto and FES (Farm Equipment Segment) segments this quarter.

Consensus Estimate (Source: market screener website)

  • The closing price of M&M Ltd is Rs 522/- on 08-Aug-19. It traded at 12.6x / 12.3x the consensus EPS for FY 20E / FY21E EPS of Rs 41.56 / 42.28 respectively.

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