Mahindra & Mahindra

Not keen on diversifying at this point – M&M

Update on the Indian Equity market:
On Friday, Nifty50 ended 0.2% higher at 12,720. EICHERMOT (+7.4%), BAJAJFINSV (+3.7%), and COALINDIA (+3.1%) led the index gainers while TATAMOTORS (-3.3%), LT (-2.0%), and HDFC (-1.1%) led the laggards. Among the sectoral gainers, METAL (+1.7%), REALTY (+1.3%), and PHARMA (+1.1%) were the leaders while MEDIA (-0.9%), and FMCG (-0.1%) were the only index losers.

Excerpts of an interview of Mr. Anish Shah, MD & CEO-designate, M&M published in Business Standard on 12th November 2020:
• The stock price has more than doubled since March. The board’s decision to not invest in SsangYong was important and signaled to investors that the management is serious about capital allocation.
• The next re-rating will happen once the international subsidiaries turn around and start contributing to earnings. The second set of actions is toward driving the growth of the domestic business. Third, they have identified significant growth drivers for the future, which are termed ’10 gems’.
• They are conducting a detailed analysis of growth drivers of international subsidiaries’ performance; does it have the potential for an 18 percent return on equity? They are working to see if they can revisit their go-to-market, product, and channel strategies. The subsidiaries will have to show a profitable path.
• M&M was the best performing stock in the Nifty for 17 years. Though acquisitions were made even then, that was driven by a very high level of fiscal discipline. Now, the acquisitions will be made, just that the bar in terms of fiscal discipline will be as high as it was in the past.
• They don’t expect to diversify even when they make an acquisition. There are 10 businesses right now and they believe there is a lot of potential to grow. They are keen on scaling up the diversified footprint.
• The joint venture with Ford has been delayed because of the pandemic and government approvals.
• There is a lot of synergy from material costs in the auto and farm equipment segments. They announced the best-operating margins and that is why those segments will be together.

Consensus Estimate: (Source: market screener website)
• The closing price of M&M was ₹ 629/- as of 13-November-2020. It traded at 23x/ 17x/ 15x the consensus earnings estimate of ₹ 26.9/ 36.7/ 41.1 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 667 implies a PE multiple of 16x on FY23E EPS of ₹ 41.1/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Plants running at 100% capacity- M&M

Update on the Indian Equity Market:
On Thursday Nifty closed -0.1% lower at 11,527. Among the sectoral indices Bank (-1.4%), PVT Bank (-1.4%), FIN Services (-1.0%) closed lower. IT (+1.50%), Pharma (+0.9%) and FMCG (+0.8%) closed higher. ICICI Bank (-2.1%), Bharti Airtel (-1.9%) and Axis Bank (-1.9%) closed on a Negative note. Infratel (+10.9%), GRASIM (+7.2%) and Titan (+5.9%) were among the top gainers.
Excerpts from an interview of Mr. Hemant Sikka, President Farm Equipment Sector, M&M with CNBC-TV18 dated 2nd September 2020:
• Tractor sales were up 65% YoY, M&M remains positive because of good harvest and bountiful monsoon.
• The production started from mid-May and now plants are running at 100% capacity.
• The demand is robust throughout the country. The kharif sowing is going well which gives a confidence to farmers.
• The domestic market grew by 69% in August 20.
• On Finance, the availability is better compare to 3-4 months back. Initially finance was an issue as offices were not open, it was difficult for people to reach offices.
• The improvement in financing is seen from middle of June. The collection is also good as farmers have a better cash flow.
• Mr. Sikka said that for the next 3 months the company is expecting a full blast of production.
• The stock is at historic low levels.
• The challenges on supply side had eased out. All suppliers have ramped up their production.
• A good festive season is expected as supply chains are coming back on track and all factories running.
Consensus Estimate: (Source: market screener and websites)
• The closing price of M&M was ₹ 642/- as of 03-September-2020. It traded at 25x/ 18x/ 16x the consensus Earnings per share estimate of ₹ 26.1/35.7/41.1 for FY21E/ FY22E/ FY23E respectively.
• The consensus average target price for M&M is ₹ 585/- which implies a PE multiple of 14x on FY23E EPS of ₹41.1/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Tractor demand will continue to remain buoyant – M&M

Update on the Indian Equity Market:
On Thursday, NIFTY ended up 99 pts (+0.89%) at 11,200.
Among the sectoral indices, IT (+1.8%), FMCG (+1.4%) and METAL (+1.4%) were top gainers while PSUBANK (-0.32%) was the only loser.
Among the stocks, TATASTEEL (+3.8%), INFY (+2.9%) and GAIL (+2.6%) were the top gainers. EICHERMOT (-1.3%), SHREECEM (-1.2%) and ADANIPORTS (-0.9%) were the top losers.

Tractor demand will continue to remain buoyant – M&M

Edited excerpts of an interview with Mr. Hemant Sikka, President, Farm Equipment Sector (FES), Mahindra & Mahindra Ltd with Business Standard dated 5th August 2020:

Hemant Sikka commented that the company noticed a turnaround in tractor business in December. Things were going very well.

• Comments on key factors driving sales: This is the peak season for tractors. The strong demand momentum continued, aided by positive sentiments due to good cash flows to farmers, higher kharif sowing, a timely and normal monsoon cumulatively across June and July, and continued higher rural spending by the government. While it is too early to share target figures for the entire year, it is expected that this demand will continue to remain buoyant in the coming months.
• He informed that 75% of the tractor sales are on finance, M&M have aligned finances very well starting in May itself building out further in June and July. In addition to land preparation, tractors provide machine power for performing various farm applications and can be used to pull a variety of farm equipment, while also relieving the burden on farm labor and improving farmer’s livelihood.
• When asked about the supply chain constraints he replied that with tractor capacity at nearly 95%, some localized lockdowns enforced in certain cities are hampering the ramp-up of the supply chain, thus affecting production at OEMs. More than 90% of the dealers have started.
• When asked about the Capex plans, he said that K2 is a large investment, and K2 will be over by the end of FY21, some will be before FY22. (Under K2 project, the company is creating a new platform on which a new range of tractors, developed in collaboration with Mitsubishi of Japan, to further strengthen its position, both in the domestic).
• The company also made engine investments in the recent past. Investment in Swaraj tractor was also made by M&M. He further added that they are not compromising with the products for the future. It’s just that the company is completing a peak of Capex in this Capex cycle.
• While FES has a strong tractor portfolio, M&M is building technology skill sets beyond it and working on introducing a range of farm machinery, with the idea of taking technologies used in large landholding farms around the world and making them affordable and accessible to small landholding farmers. This is based on having established three global technology Centers of Excellence in Japan, Finland & Turkey, through acquisitions made over the last couple of years, from new products will be launched in FY21.
• Simultaneously, M&M is also focusing and developing Farming as a Service vertical (FaaS), which will focus on giving farmers advisory and precision farming technologies to help our farmers increase their productivity and get more output from their efforts.

Consensus Estimate: (Source: market screener, websites)

• The closing price of M&M was ₹ 610/- as of 06-Aug-2020. It traded at 24x/18x/16x the consensus earnings estimate of ₹ 25.7/34.0/39.5 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 585/- implies a PE multiple of 15x on FY23E EPS of ₹ 39.5/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Aim to go back to 20%-22% ROE- Mahindra & Mahindra

Update on the Indian Equity Market:


On Thursday, Nifty closed 1.0% higher at 10,755. Within NIFTY50, HINDALCO (+6.6%), HDFC (+4.3%), and SBIN (+4.1%) were the top gainers, while INFRATEL (-1.9%), COALINDIA (-1.5%) and TECHM (-1.2%) were the top losers. Among the sectoral indices, METAL (+1.9%), FIN SERVICE (+1.6%), and BANK(+1.4%) gained the most.  FMCG(-0.3%) was the only sector to close in red.


Aim to go back to 20%-22% ROE- Mahindra & Mahindra


Excerpts of an interview with Mr. Anish Shah, Joint MD–Mahindra & Mahindra published on ET Auto dated 7thJuly2020:

  • M&M’s loss making subsidiaries had a difficult couple of years. M&M is now looking to take direct action.
  • The loss-making subsidiaries are being evaluated and categorized into 3 groups – Category A: companies with clear path to 18% Return on Equity (ROE). Category B: companies with unclear path to profitability but can deliver quantified strategic benefit, and Category C: Calls for a possible exit through alliance or sale as it does not fit into A or B.
  • This review of subsidiaries will be carried out every 6 months to ensure businesses are on track and milestones are being achieved.
  • Over the last 4 years, profits of M&M were being eroded by the loss-making subsidiaries- 1% in FY17, 12% in FY18 because of international subsidiaries, 25% in FY19, and over 1.7% in FY20.
  • 2 years ago, M&M management started ‘challenge round’ where as Head of Group Strategy, Mr. Anish Shah was asked to challenge all proposals and recommend to the board whether to invest or not. In the process, tough calls have been taken on two-wheeler business, Baby Oye, and Mom and Me among others.
  • In 4QFY20, M&M took a call to stop further investments in SsangYong and Gen Z. Almost 60% of losses came from SsangYong and Gen Z.
  • By the end of this FY21E, the remaining loss making subsidiaries will be addressed and shut down in absence of a clear path. Entering into FY22, a lot of these problems will be history.
  • M&M aims to have a simpler structure going forward. While the focus is looking at the loss making subsidiaries and getting them back on track, M&M does not want to change the spirit of entrepreneurship.
  • Multiple reasons led to the losses in last 2 years. The environment is one reason and excess confidence in some business is the other. Essentially, there will be a higher financial discipline that will come in.
  • M&M’s share price, as of high of August 2018, had a 31% annualized growth rate over a period of 17 years. The factors that drove this return were, – earnings-per-share growth of 34%, cash generation of Rs 23 bn per year on an annualized basis and annual return on equity of 22%. In order to get back to that kind of performance, M&M will have to get back to 20%-22% RoE and 30%-plus growth rate in cash generation.
  • M&M’s ROE in the last few years has gone down from 20% to 12%. In stage 1, by fixing loss making subsidiaries M&M should be back to 18% ROE. In the next stage, taking a look at 0-10% ROE businesses and fixing them, should mean going back to 20-22% of ROE.
  • M&M’s preference is to have a solid and conservative business over a rapidly growing risky business. M&M Finance’s business is strong and M&M is putting in capital to ensure that in any scenario, if things get much worse, there is no impact on the business. Mahindra Finance has always raised capital before it is needed, so they didn’t wait until the capital was needed. There were some analyst concerns regarding the capital issue but M&M is confident that M&M Finance should have a very high degree of subscription.
  • M&M aims to be the gateway to the largest and fastest growing themes in India and hospitality is one of them. M&M has a timeshare model and a long-term bond with the consumers. As a result, M&M expects that it’s hospitality business may not be impacted much. Post the COVID-19 crisis, M&M’s hospitality business can grow much faster.
  • As for Meru, M&M is looking at it closely to see what the real path to profitability is. M&M does not have a definitive answer to that yet.

Consensus Estimate: (Source: market screener and websites)

  • The closing price of M&M was ₹ 563/- as of 09-July-2020. It traded at 22.1x/ 16.7x the consensus EPS estimate of ₹ 25.5/ 33.7for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 556/- implies a PE multiple of 16.5x on FY22E EPS of ₹ 33.7/-.


Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”


Focus on cash conservation & tightening capital allocation – M&M

Update on the Indian Equity Market:

Markets remained muted amid monthly F&O expiry as Nifty closed the day 0.2% lower at 10,289. The top gainers for Nifty 50 were ITC (+5.6%), HEROMOTOCO (+2.9%) and BAJFINANCE (+1.9%) while the losing stocks for the day ASIANPAINT (-3.1%), HINDALCO (-2.3%) and IOC (-2.1%). The gaining sectors for the day were FMCG (+2.3%), PHARMA (+0.8%) and BANK (+0.4%) whereas IT (-1.2%), REALTY (-1.0%) and METAL (-0.6%) were the losing sectors for the day.

Edited excerpts of an interview with Mr Pawan Goenka, Managing Director, Mahindra & Mahindra Ltd (M&M); dated 15th June 2020 from CNBC TV-18:

  • Mr Goenka said that the board took a decision that the Company needs to be much tighter on  capital allocation and prioritize where they want to put the money.
  • M&M is looking at all the subsidiaries right now to see whether they will be turning around profitable in the next two years. The company will take the decision in the coming few months about its subsidiaries.
  • Speaking about Peugeot Motorcycles, he said it was hit due to the pandemic. As per the plan, it could have been profitable during this year. However, due to COVID-19, the factories in China are down for quite some time. The company has lost the full peak season in Europe. The management will take the decision on the future of Peugeot motorcycles after reviewing its future.
  • Mahindra Electric turned EBITDA positive in FY20 and the company is on the way to become profit positive or cash-flow positive in the coming quarters.
  • He is confident about the strength of the balance sheet to fight the pandemic. The company holds a fairly strong cash position with more than Rs 100,000 mn cash on its balance sheet.
  • In the near term, the company’s primary objective is to find a third party investor in Korean manufacturer SsangYong as it is in need of cash for survival. 
  • The company reported a consolidated net loss of Rs 32,550 mn during the 4QFY20 due to the COVID-19. In the tough economic period, the company is looking to focus on capital allocation strategies.

Consensus Estimate: (Source: market screener, investing website)

  • The closing price of M&M Ltd was ₹507/- as of 25-June-2020. It traded at 20x/ 15x the consensus EPS estimate of ₹ 25.3/ 33.6 for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 558/- implies a PE multiple of 17x on FY22E EPS of ₹ 33.6/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”


Business cannot take priority over the safety of people- Mr Pawan Goenka, MD, Mahindra & Mahindra

Update on the Indian Equity Market:

On Tuesday night, PM Narendra Modi announced a nationwide lockdown for the next 21 days to fight against the spread of Covid-19. On Wednesday, NIFTY continued gains for the 2nd day and ended at 8,318 (+6.6%). This rally might be in the expectation that an economic package to counter economic disruptions might be announced soon.

Among the sectoral indices, Financials gained the most while no sector index ended negatively. FIN SERV (+9.7%), PVT BANK (+8.5%) and BANK (+8.4%), AUTO (+4.3%) were the top gainers. Out of the NIFTY50 stocks, RELIANCE (+13.8%), HDFCBANK (+12.4%) and KOTAKBANK (+11.9%) rallied the most. INDUSINDBK (-3.3%), IOC (-3.1%) and COALINDIA (-2.8%)  were among the few stocks that ended in red.

Business cannot take priority over the safety of people- Mr Pawan Goenka, MD, Mahindra & Mahindra

Edited excerpts of an interview with Mr Pawan Goenka, Managing Director of Mahindra & Mahindra; dated 23rd March 2020. The interview aired on CNBC-TV18.

  • As a contribution to tackling the Covid-19 crisis, the Mahindra Group has taken certain steps. The Group has started work on how their manufacturing facilities can be used to make ventilators. They have put their projects team on standby to assist the government or the army in erecting temporary care facilities. In addition, Mahindra Holidays will offer their resorts as temporary care facilities.
  • The foremost consideration is given to the well-being of the group’s employees. Plants in Nagpur, Kandivali and Chakan have already shut down. Over the next few days, most plants will be shut down.
  • No one is in a mood to buy cars right now. Dealerships are also shutting down due to lockdowns. The automotive business is slowing down. Tractor business is also slowing down, although not to the same extent.
  • Mahindra Group is playing it by the day as things are very dynamic. It is difficult to predict how long the shutdown will last. If lockdown lasts only until 31st March, the business that has slowed down will come back in the next 2-3 months. If lockdown lasts longer than 31st March, the comeback will take much longer.
  • Need for tractors in agriculture cannot disappear. The tractor buying peaks in May-June period. If Mahindra does not miss out this season, then the tractor business will be fine. However, to tap that season, production will have to take place in April. But in the current scenario, the business will not take priority over the safety of the Group’s people and communities.
  • For the auto and tractor business point of view, the foremost responsibility of the company is to make payments to its suppliers and low wage earners-especially the contract workers and daily wage workers.
  • Mahindra Finance is closely watching the concern of liquidity in the market. There is a concern of EMI payments not happening but that will not happen immediately. The farmers have probably already received revenue from the previous cycle and so there might not be an issue.
  • The big unknown from the perspective of Mahindra Financial is what will happen to the financial cycle, i.e money coming into the NBFC from both borrowings and EMI payments. It is very important to get that cycle going. But right now, the sales pull will also be less hence the demand for financing will be less.
  • The group has an advantage in terms of business diversification.
  • Mr Goenka is of the opinion that although the Government is also under pressure and we should not expect too much, the government has to step in at this point. Mr Goenka has mentioned three things that he expects from the government at this point:
  1. For the auto industry, the immediate issue is the 31st March deadline to liquidate BS-IV inventory. It is not in the hands of the Government as it’s a supreme court matter. Mr Goenka is hoping that the court extends the deadline and gives extra time to liquidate the BS-IV vehicles. As no OEM is manufacturing BS-IV vehicles any longer, there is no problem of excessive dumping of those vehicles.
  2. The second area where Government intervention is needed is to help in the liquidity situation. If a moratorium of say 3 months is imposed on recognition of EMI non-payment as NPAs, NBFCs will be able to have a bit of a breathing room. The government needs to ensure that the financial cycle does not break down because it will take a long time to repair if broken.
  3. Thirdly, the Government must not delay any payments due to the industry as right now the industry needs funds.

Consensus Estimate: (Source: market screener, websites)

  • The closing price of M&M was ₹ 274/- as of 25-March-2020. It traded at 7.2x/ 7.7x/ 6.7x the consensus EPS estimate of ₹ 38.3/ 35.4/ 40.6 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 651/- implies a PE multiple of 16.0x on FY22E EPS of ₹ 40.6/-

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.

Mahindra & Mahindra Ltd: “Improvement in market sentiment & government stimulus are crucial for the auto sector to revive”

Dated: 12th July 2019

Interview by Dr Pawan Goenka, Managing Director of M&M Ltd.
Key highlights:
1) According to him, the budget was good for the long-term vision for the government but expected short- term stimuli that the auto sector needed for the next 3-4 months were missing.
2) He said that it is hard to predict what will happen in the next 2-3 months in the auto sector. The sector has seen its worst quarter this year for passenger vehicles since 2001. The closest fall was in 3QFY09 which recovered at a faster pace.
3) The industry has the resilience to recover quickly from a sharp drop that has happened and they have proven the same 2-3 times.
4) Mahindra has performed better than the industry average performance for the 1QFY20. In the month of June M&M was the only company that had positive growth in the passenger vehicle segment. The fact remains that the quarter performance was not as per the Company’s expectation.
5) According to him, new launches in the coming quarters will cause a demand a spurt.
6) With the slowdown in the industry, the commodity prices have been showing a downward trend which will help the industry to revive. The industry is not expected to increase model pricing. Thus, this will help to create a demand for the new launches by giving customer incentives or reduce the model price.
7) 1QFY20 will have a high base effect as the same period last year had delivered the highest growth.
8) The safety norms that are coming in on 1st October 2019 & the BS-VI norms will lead to a significant increase in the prices of the vehicles. That will have a downward pressure on demand again.
9) In June M&M had a 20% shutdown where they worked for 25 days in that month to manage the inventory level. The Company was trying to correct down dealer inventory which had happened successfully. M&M expects that July will not be as bad but still have a couple of days of shutdown in July.
10) August- & September’19 are the festive seasons where he expects the plants to run at full capacity.
11) For the tractor segment growth, he has slightly lowered the growth estimate from the initial growth expectations of 5%. He would revise the downward estimates after July considering the monsoon conditions. He also said that in the same period last year there was a growth of 28% YoY which will add to the downward pressure on the growth.

Consensus estimates (Source: Marketscreener website):
M&M Ltd with a closing price (as on 10-04-2019) of Rs 668/- per share trades at a P.E of 12.6x/ 12.9x/ 13.3x its earnings per share estimates of Rs 50.1/ 49.0/ 47.4 for FY20E/ FY21E/ FY22E. The consensus price target is at Rs 791/- over the next 12 months.