Mahindra & Mahindra score – Purchase: A very good efficiency in Q2FY22 by the corporate

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M&M’s Q2FY22 EBITDA at Rs 16.5 bn got here consistent with consensus. Key highlights: (i) Sturdy UV efficiency. (ii) A structured launch pipeline in UVs, CVs, tractors and EVs over FY23–26. (iii) Auto subsidiaries sustained their Ebit-positive journey.

M&M continues to stroll the discuss on two key RoIC drags: UVs and subsidiary losses. Nevertheless, recognising the prices and aggressive pressures, we’re reducing FY23e EPS by 11%. Preserve ‘Purchase’ with an SoTP-based TP of Rs 1,098 (earlier Rs 1,111) as we roll ahead the numbers to Mar-23e (unchanged valuation).

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Q2FY22: Good exhibiting
Standalone income at Rs 133 bn (up 15% y-o-y) was 7% above estimate. Nevertheless, commodity price stress led to in-line (consensus) Ebitda of Rs 16.5 bn (down 22% y-o-y). The FES section continues to do properly (ASP up 4% q-o-q/6% y-o-y). Consequently income at Rs 55 bn (up 1% y-o-y) outgrew quantity decline of 5%. Automotive income at Rs 80 bn reported robust y-o-y/q-o-q development led by combine in addition to pricing motion. FES subsidiaries reported the second consecutive quarter of Rs 1 bn+ revenue. Auto section volumes slid 32K on account of ECU shortages. Whereas the provision of chips stays dynamic, the worst is behind as Covid-induced shortages have been extreme in current months.

Guiding lights: 15–20% 3-year income CAGR aspiration and 18% RoE
We count on money flows of the auto and tractor companies to be largely utilised thereof. Funding in group firms might be funded by dividend/different asset monetisation. Mgmt outlined a structured product pipeline (together with upgrades, EV launches). By FY27, M&M will launch ten UVs (together with 5 EVs), 13 tractors (two EVs), aside from a collection of implements and 17 LCVs/3W (5 EVs). In UVs, the main target might be on core SUV (protecting 70% of market).

Outlook: Re-rating potential exists
Because the RoIC drags get addressed, the true franchise worth of the tractor and LCV enterprise could be recognised. Moreover, RoIC drags will begin contributing to money circulate post-restructuring. Preserve ‘BUY/SO’ with an SoTP-based TP of Rs 1,098. M&M is buying and selling at FY22/23e PE of 22x/22.9x (ex-listed subsidiaries).

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