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M&M Q1FY23 Review: Stable performance, healthy growth prospects lie ahead!

ICICI Securities 08 Aug 2022

What’s Buzzing:

Mahindra & Mahindra (M&M) posted a steady performance in Q1FY23. It remained committed towards 18% RoE target through internal efficiencies and improving profitability at its overseas operations amid unveiling of born electric EVs on August 15, 2022.

Context:

Standalone net sales for the quarter were at Rs 19,613 crore (up 14.5% QoQ). Standalone EBITDA in Q1FY23 was at Rs 2,341 crore with corresponding EBITDA margins at 11.9% (up 57 bps QoQ). Gross margin decline for the quarter was at ~25 bps QoQ but savings were realised in other expenses, which, for the quarter, were down 72 bps QoQ. Consequent standalone PAT for the quarter came in at Rs 1,430.2 crore, up 10.7% QoQ.

Our Perspective:

Automotive volumes for the quarter were nearly flat QoQ to ~1.53 lakh units while tractor volumes recorded 63% QoQ increase to ~1,18,509 units (seasonality impact). Automotive ASPs were up 3.6% QoQ to ~Rs 8.01 lakh/unit (~2% higher than estimates) with tractor ASPs down 5% sequentially at Rs 5.64 lakh/unit (lower than our estimates). For Q1FY23, automotive segment posted ~10 bps increase in EBIT margins QoQ to 5.7% while tractor segment EBIT margins grew by ~30 bps QoQ to 16%. The company ended the quarter with >40% market share for its tractor division (up 0.9% QoQ). It also retained its market leadership in the electric 3-W category with market share pegged at 74.4% as of Q1FY23.  The company is witnessing healthy demand traction across its product portfolio with present bookings pegged at 1.4+ lakh units (ex-Scorpio N) with XUV700 bookings pegged at ~0.8 lakh units. Newly launched Scorpio N received encouraging consumer response and crossed 25,000 units booking within a minute and ~1 lakh units in 30 minutes. Further in the recent past the company raised funding specific for its EV arm with valuation pegged at Rs 40,400-70,070 crore. M&M continues to be a key beneficiary of cyclical recovery under way in the commercial vehicle segment, need for personal mobility driving demand in the passenger vehicle segment and underpenetrated farm mechanisation domestically. Key monitorables, going forward, for the company are margin recovery especially post recent softness in steel prices domestically, production ramp up supporting the robust order bookings and timeline of new product launches on the EV front.

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