CMP:
Rs. 947.30; Buy at current levels.
Medium to Long term Target – Rs. 1053.40; STOP LOSS – Rs. 871.51; Market
Cap: Rs. 58,162.39 Cr; 52 Week High/Low: Rs. 1026.00 / Rs. 674.30.
Total
Shares: 61,39,80,756 shares; Promoters : 15,53,60,571 shares –25.31 %; Total Public
holding : 45,86,20,185 shares – 74.69 %; Book
Value: Rs. 197.18; Face Value: Rs. 5.00; EPS: Rs. 54.37; Dividend: 250 % ; P/E:
17.42 times; Ind. P/E: 18.44; EV/EBITDA: 11.91.
Total
Debt: Rs. 3,174.22 Cr; Enterprise Value: Rs. 50,619.76 Cr.
MAHINDRA & MAHINDRA LTD: The Company was formed in 1945 as Mahindra
& Mahindra and renamed as Mahindra & Mahindra Ltd in 1948, based in
India. Mahindra & Mahindra Limited operates in the Motor vehicles and car
bodies sector. The Company operates in nine segments: Automotive segment
comprising of sales of automobiles, spare parts and related services; Farm
equipment segment comprising of sales of tractors, spare parts and related
services; Information technology (IT) services comprising of services rendered for
IT and telecom; Financial services comprising of services relating to
financing, leasing and hire purchase of automobiles and tractors; Steel trading
and processing comprising of trading and processing of steel; Infrastructure
comprising of operating of commercial complexes, project management and
development; Hospitality segment comprising of sale of timeshare and Systech
segment comprising of automotive components and other related products and
services, and its others segment comprise of logistics, after-market, two
wheelers and investment. In November 2009, BAE Systems entered into a joint
venture agreement with Mahindra & Mahindra Limited to create a land systems
focused joint venture Defense Company, based in India. During the fiscal year
ended March 31, 2011, the Company acquired a 70 % stake in Ssangyong Motor
Company Limited - a manufacturer of sports utility
vehicles in Korea. The company has a distribution network of over 130 dealers
in Korea and exports to over 90 countries through 1,200 dealers. With the
support of M&M, SMC is working on a revitalization plan with strong focus
on cost reduction along with new product development and market expansion. The Group at the end of the March 2013
comprised of 123 Subsidiaries, 5 Joint Ventures and 12 Associates. A full
summation of Gross Revenues and other income of all the group companies taken
together for the whole year Fiscal 2013 was Rs. 88,093 crore (USD 16.2
billion). Mahindra & Mahindra Ltd is
compared locally with Maruti Suzuki India Ltd, Ashok Leyland ltd, Tata Motors,
Bajaj Auto in India and globally with Hino Motors Ltd of Japan, Great Wall
Motor Company Ltd of China, Beiqi Foton Motor Company Ltd of China and
Guangzhou Automobile Group Company Limited.
Investment Rationale:
Mahindra & Mahindra, India’s leading SUV manufacturer and the
leader in the Indian Pick up segment has now entered into compact car segment, where Maruti & Hyundai are dominant players with introducing M&M's Verito Vibe a sub 4 meter vehicle based on the Verito (Logan) platform. M&M has invested around Rs. 60 Cr in the development of its new 'Vibe' and has launched three variants starting from Rs. 5.63 lakhs to Rs. 6.49 lakhs (ex- showroom Mumbai without octroi). M&M is targeting a niche segment by calling the Vibe a compact car not a Hatchback or sub 4-meter sedan. M&M had two launches in the month of April
and May - first its new Bolero Maxi Truck Plus (BMY Plus) which is priced at Rs.
4.33 lakhs (BS3) ex showroom Thane and Rs. 4.43 lakhs (BS4) ex showroom Mumbai
excluding octroi. This truck has been developed on Mahindra’s rugged Bolero
Pick up platform and is conceptualized to carter to the needs of urban goods
transportation. It is powered by Mahindra’s proven 2523 CC fuel efficient
common rail engine which delivers 17.7 km per liter mileage. Second it launched
its H- Series Xylo with the advance technology mHawk engine. The power pack
h-series offers a range of variants starting with H4 (with ABS options), H8
(with ABS & Airbag option) and a fully loaded feature packed H9 version
which includes several unique features like Voice Command Technology (VCT),
Cruise Control, Digital drive Assist System etc. The new H series starts at an
very competitive price of Rs. 8.23 lakhs ex showroom Mumbai. It will be notable
to say here that Xylo was introduced in 2009 and from then on it has carved a
unique identity for itself in the area of class leading space & comfort. Mahindra Vehicle Manufacturers Limited
(MVML), located at Chakan near Pune, was set up as a 100% subsidiary of the
company with a view to sourcing contemporary products for expanding the market
offerings of the company. The overall performance of the
standalone business has been good despite the tough operating environment, with
the UV segment growing 23.4% YoY while the FES segment de-grew of around 1%
YoY. Export markets volumes have been lower in the quarter as international
markets like Sri Lanka and Bangladesh have witnessed slowdown.
The consolidated Gross Revenues and Other
Income for the year ended 31st March 2013 grew by 17.4 % to Rs. 74,403.0
crore from Rs. 63,357.8 crore in last year. On account of a
change in the status of Tech Mahindra from a Joint Venture to an Associate
effective 31st Aug 2012, the revenues reported above include M&M’s share of
Tech Mahindra revenue only till end Aug 2012. On a like to like basis the growth in the consolidated revenues in the
current year is 20.6% over the previous year. The consolidated profit
after tax and after deducting minority interests for the year is Rs. 4,099.2 crore as compared to Rs. 3,126.7
crore in the previous year – a growth
of 31.1%. During the year, some of the major group companies like
Mahindra Finance, Mahindra Lifespace Developers and Tech Mahindra significantly
improved their performance over the previous year. Mahindra Finance performed
with a 41% growth in consolidated revenues and showed 44% increase in profits,
and that of Tech Mahindra with a 22% growth in consolidated revenues and an 18%
growth in profits. There was significant improvement in the performance of
Ssangyong Motors, the group’s South Korean subsidiary, with a 29% reduction in
its losses. During the current year there was also a deemed divestiture profit
of Rs. 277 crore arising from the Qualified Institutional Placement of Shares
by Mahindra & Mahindra Financial Services Ltd. In the Passenger Utility
Vehicle segment, the Entity sold 72,076 vehicles in the current quarter - a
growth of 23% over the numbers sold in Q4 last year. All the products of the
entity’s UV portfolio continued to do well and the Entity continued its
leadership position with a market share of 47.8%. In the Cars segment, the
Entity sold 3,747 Verito Cars. The Entity also exported 7,766 Vehicles in the
current quarter. In this quarter, the company sold 46,107 tractors under the Mahindra
& Swaraj brands as against 48,517 tractors sold in Q4 last year.
The company exported 3,767 tractors in Q4.
Outlook and Valuation:
M&M continued its
good performance in spite of the tight macroeconomic constraints that had tethered the Indian
economy for the past several quarters and which seems to have somewhat eased in
the last few months. The company’s market share during the quarter was 37.2%. Looking forward, the
management expects the Indian economy to stage mildly, consumption-led recovery
in Fiscal year 2014. Subject to a normal monsoon, as forecast by the Indian
Meteorological Department, agricultural growth is likely to see considerable
improvement in Fiscal year 2014, leading to a steady moderation in inflation
and a bounce back in rural incomes, and consumer demand. At the same time, with
the advanced economies expected to witness a recovery this year, exports are
likely to maintain the momentum witnessed in Q4. Private investment demand,
however, is likely to remain weak. It may show a significant pick up in case
there is a concerted policy action by the government. Overall, our outlook on
the economy, while more positive than six months ago, remains cautious and watchful. On SOTP
(sum-of-the-parts) basis, the valuation of M & M on standalone business
comes at Rs. 825/share and the value of its investments in other listed subsidiaries comes at Rs. 228.40/share after a 20% holding discount. Company
has majority stakes in various listed companies in other sectors, including
technology, property and finance, its Investments constitutes to 65% of the
balance sheet. The high growth potential of M & M's subsidiaries is
expected to unlock the actual value of the stock over the years to come. Listing
of its subsidiaries has been supporting the company’s valuation in the recent
past and will continue to do so in the long term as well. So holding on to M
& M would be advisable for the long term players. In my view M&M could
report EPS in FY14E & FY15E of Rs. 62.20 sh and Rs. 72.70/sh,
respectively. I would buy M & M LTD for the medium to long term period with
a price target of Rs. 1053.40
SOTP VALUATIONS
Business Subsidiary
|
Value Per Share (₹)
|
|---|---|
M&M Standalone
|
825.00
|
M&M Financial Services (Listed)
|
89.71
|
Mahindra Forgings (Listed)
|
3.60
|
Mahindra Holidays & Resorts Ltd(Listed)
|
20.80
|
Mahindra Lifespace Developers(Listed)
|
10.73
|
Mahindra Ugine Steel Co(Listed)
|
1.18
|
Tech Mahindra(Listed)
|
77.38
|
Ssangyong Motor Company
|
24.00
|
Other Investment (at BV)
|
1.00
|
TOTAL
|
1053.40
|
| KEY FINANCIALS | FY12 | FY13E | FY14E | FY15E |
|---|---|---|---|---|
| SALES (₹ Crs) | 31,392.00 | 39,903.10 | 47,537.90 | 54,133.00 |
| NET PROFIT (₹ Cr) | 2,878.90 | 3,352.80 | 4,075.20 | 4,765.40 |
| EPS (₹) | 43.90 | 51.20 | 62.20 | 72.70 |
| PE (x) | 20.50 | 17.70 | 14.50 | 12.40 |
| P/BV (x) | 4.90 | 4.00 | 3.30 | 2.70 |
| EV/EBITDA (x) | 16.00 | 12.60 | 9.90 | 8.10 |
| ROE (%) | 23.80 | 22.90 | 22.90 | 22.10 |
| ROCE (%) | 20.90 | 22.40 | 24.20 | 24.60 |
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