M&M Q3 Results Review - Inline; Core Tractor Ebit Remain Healthy: Yes Securities

Yes Securities Report

Mahindra and Mahindra Ltd.'s Q3 FY24 operating performance was in-line. Ebitda grew 15% YoY (5.6% QoQ) at Rs 32.4 billion (in-line) was led by ~60 basis point YoY (+20bp QoQ) expansion in gross margins at 24.6% (in-line) and continued cost control. This led to Ebitda margins at 12.8% (-20 bp YoY/ +20 bp QoQ, in-line).

However, lower other income at Rs 7.4 billion (estimate: Rs 11 billion) lead to adjusted profit after tax miss at Rs 24.5 billion (estimate ~Rs 27.3 billion, +14% YoY).

Adjusted for one-off of ~70 bp due to world cup sponsorship expense, farm segment Ebit remained flat QoQ at 16.2% (versus 15.5% reported).

We reckon, margins for near term likely to contract led by decline in farm segment contribution in revenue mix With ramp-up in supplies, auto order book declined to ~226,000 as of Feb 01, 2024 (versus 286,000 units as of November 2023 and 292,000 as of May-23).

The management indicated healthy demand for premium products continues to prevail.

We cut our FY25/26 earnings per share by 1-2% each to factor in for lower other income as we were anticipating decline in tractor volumes to come through.

While we expect auto business to lead the growth over farm equipment segment, deterioration in the mix would restrict revenue/Ebitda/PAT compound annual growth rate to ~9%/11%/4% over FY24-26E.

Implied core price/earning for M&M stands at 12.6 times/11.79 times FY25/FY26E EPS is attractive though. Hence, we maintain 'Add' rating on the stock with revised SoTP based target price at Rs 1,931 (versus Rs 1,997 earlier) on March-26 EPS.

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