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M&M posts healthy operational performance in Q3FY22

ICICI Securities 11 Feb 2022

What’s Buzzing:

Amid higher-than-expected gross margin decline for the quarter (200 bps QoQ), Mahindra & Mahindra (M&M) reported a healthy performance in Q3FY22. EBITDA margins for the quarter came in at 11.9%, down 60 bps QoQ. This was primarily tracking substantial savings realised in other expenses, which for the quarter were down 120 bps. The management shared healthy demand outlook for the company’s product basket with current order-backlog at 155,000+ units including ~70,000+ units of the recent launch i.e. XUV700.

Context:

In Q3FY22, for M&M, standalone sales for the quarter were at Rs 15,239 crore, up 14.5% QoQ. Automotive sales volumes for the quarter were at ~1.21 lakh units, up 19.2% QoQ, with tractor volumes recording 4.6% QoQ increase to ~0.9 lakh units. EBITDA in Q3FY22 were at Rs 1,806 crore with consequent PAT at Rs 1,353 crore, down 5.5% QoQ. Higher PAT for the quarter was also supported by better than anticipated EBITDA margins, higher other income (dividend from subsidiaries and JVs) and lower effective tax rate (~18%).

Perspective:

Mahindra & Mahindra (M&M) is India’s largest tractor manufacturer (38.2% FY21 market share) and prominent player in the CV & PV domain. The CV space is undergoing a cyclical recovery while there is robust demand for M&M’s product basket in the PV domain, especially for successful new launches like XUV 700, Thar among others. Hence, the company is well poised for healthy profitable growth ahead. The company is also leading the EV transition domestically and is currently the industry leader in the E-3-W space with a presence in the electric-PV segment as well. It has guided for aggressive model launches in this domain, going forward. It is also walking the talk on revamped capital allocation strategy and is well poised for healthy double digit return ratios starting FY23E.

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