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M&M Q4FY22 Review: Stable performance, remains committed to 18% RoE target!

ICICI Securities 30 May 2022

What's Buzzing

Mahindra & Mahindra (M&M) posted a healthy performance in Q4FY22 in line with our estimates. Absence of any major one-offs related to impairment charge on investments was also a key takeaway from the quarterly results. The company remained a net debt free entity on standalone basis with healthy CFO (~Rs 7,100 crore) as well as FCF generation (~Rs 3,850 crore). It declared a dividend of Rs 11.55 for FY22. It also remained committed towards 18% RoE target through internal efficiencies and improving profitability at its overseas operations and sale of non-core assets.

Context

Standalone net sales for the quarter were at Rs 17,124 crore (up 12.4% QoQ). Standalone EBITDA in Q4FY22 was at Rs 1,945.5 crore with corresponding EBITDA margins at 11.4% (down 50 bps QoQ). Gross margin decline for the quarter was ahead of estimates at ~160 bps QoQ but substantial savings were realised in employee expenses, which for the quarter were down 140 bps QoQ. Consequent standalone PAT for the quarter came in at Rs 1,291.9 crore, down 4.5% QoQ, supported by lower effective tax rate and exceptional gains.

Our Perspective

Automotive volumes for the quarter increased 29% QoQ to ~1.56 lakh units while tractor volumes recorded 22% QoQ decline to ~72,826 units. Automotive ASPs were down 1.7% QoQ to ~Rs 7.74 lakh/unit (~3% lower than estimates) with tractor ASPs were up 5.8% sequentially at Rs 5.94 lakh/unit. For Q4FY22, automotive segment posted ~190 bps increase in EBIT margins QoQ to 5.6% while tractor segment EBIT margins dipped ~160 bps QoQ to 15.7%. The company ended the year with 40% market share for its tractor division (up 180 bps YoY). It also retained its market leadership in the electric 3-W category with market share pegged at 73.4% as of FY22. The company is witnessing healthy demand traction across its product portfolio with present bookings at 1.7+ lakh units with XUV700 bookings pegged at ~0.8 lakh units. Key monitorables, going forward, for the company is the management commentary on margin recovery especially post recent softness in steel prices domestically, timeline of new launches across ICE as well as EV powertrain options, further value unlocking measures for shareholders like equity raise for EV arm, demerger of automotive, tractor and other businesses etc. 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 robust farm income (amid firm global farm produce prices) driving demand for quality farm inputs including farm machinery like tractors.

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