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HDFC Securities Institutional Equities
M&M - Good performance despite a weak market
Mahindra and Mahindra Ltd.’s Q2 FY25 PAT at Rs 38.4 billion beat our estimate of Rs 32.1 billion, led by soft commodity prices and higher other income. The auto segment margin came in at 9.5% (our estimate 8%), while the farm equipment segment margin was 17.5% (our estimate 16%). Benign material prices, market share gains and volume growth (+3.7% YoY) drove margin improvement of 150 bps YoY in FES.
M&M is launching two of its Electric Origin SUVs on November 26, which will be available for sale in early CY25. The management has revised its growth estimate for tractor industry from 5% to 6-7% for FY25, translating to a 13-15% growth in H2 FY25. It remains confident of mid to high teen volume growth for the auto segment in FY25.
We continue to remain positive on the business momentum, given:
an order backlog for utility vehicles may help it further gain share;
leadership position in tractors;
focused strides taken to achieve a strong position in EVs.
We maintain the SoTP price target of Rs 3,040/share. Maintain Add.
Apollo Hospitals - Steady hospital growth; Healthco margin improving
Apollo Hospitals Enterprise Ltd.'s Ebitda grew 30% YoY on 15% YoY sales growth as hospital business grew 14% YoY, led by higher occupancy at 73% (versus 68% in Q1 FY24); average revenue per occupied bed was muted (3% YoY), HealthCo grew 17% (offline/ online +18/ 16%), and Apollo Health & Lifestyle Ltd. 14%. Hospital Ebitda grew 14% YoY, and the margin was steady at 24.9% (-4 bps), and lower Apollo 24/7 spend (-26% YoY) led to a better margin in Healthco.
Apollo Hospital expects the following:
existing hospitals: steady growth and 50 bps margin expansion in FY25 and 50-100 bps in FY26,
bed capacity expansion: on track (~1,400 beds) for commissioning in FY26 and it will dilute margin by ~100 bps; hope to achieve break-even in 12-18 months,
sustain occupancy and 6-7% ARPOB growth in FY25, and
HealthCo: withdrew 50% gross merchandise value growth guidance; focus on low-cash-burn model for growth and to improve margin (HealthCo turned PAT positive at Rs 190 million in Q2).
Factoring Q2, we have tweaked estimates. Rolled forward target price to Rs 8,250 (26x Q3FY27E EV/E). Buy stays, given growth visibility across – Hospitals: improving occupancy, ARPOB growth and capacity expansion, HealthCo: steady growth in offline and scale-up in Apollo 24/7, and Apollo Health & Lifestyle: steady growth on network expansion.
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