About the Company

Mahindra & Mahindra Limited is an Indian multinational car manufacturing corporation headquartered in Mumbai, Maharashtra, India. It was established in 1945 as Mohammad & Mahindra and later renamed as Mahindra and Mahindra. It is one of the largest vehicle manufacturers by production in India and the largest manufacturer of tractors in the world. It is a part of the Mahindra Group, an Indian conglomerate.

Q3FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 12551.54 13411.3 -6.41% 11903.8 5.44% 37697.16 41031 -8.13%
PBT 679 1279.72 -46.94% 1648.6 -58.81% 5084 5107.84 -0.47%
PAT 308.56 1076.81 -71.34% 1212.6 -74.55% 3832.97 3947.23 -2.89%

 

Consolidated Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 25303.23 26352 -3.98% 24149.42 4.78% 75742.13 78622.1 -3.66%
PBT 867.88 1913.48 -54.64% 1105.8 -21.52% 3415.38 7165.43 -52.34%
PAT 170.69 1508.1 -88.68% 368.43 -53.67% 1433.23 5101.68 -71.91%

 

Detailed Results

  1. Q3 sales was down 6.4% YoY in standalone terms and down 4% YoY in consolidated terms, mainly on the back of industry decline.
  2. The PAT before exceptional items declined 33.8% YoY. For M&M+MVML, PAT before exceptional items and one-offs rose 6.5% YoY.
  3. Operating margins were up 155 bps YoY at 14.8% in Q3FY20.
  4. The domestic PV industry saw a decline of 11.9% YoY while CV fell 6.5% YoY.
  5. Auto export volumes were down 23% YoY.
  6. The company maintained its dominant market share in tractor space at 40.5%.
  7. Tractor Exports were down 19.7% YoY due to tough global conditions. Africa export volumes fell 85% YoY.
  8. The company has launched the new Jeeto Plus model in the mini-truck range in Q3.
  9. In Mahindra USA, the company expects to breakeven by 2021 and start turning profitable by 2022. The company has also reduced dealer and plant inventory by 20% and 405 respectively.
  10. In SsangYong, a 3-year business plan to achieve breakeven in 2022 has been approved. The approx. funding for this plan is around 450-500 billion Korean Won where 50% of amount will be used for loan repayment while the other 50% will be used for product development.
  11. The company has also gotten CCI approval for the formation of JV with Ford which is expected to be done by May 2020. M&M is expected to save around Rs 400 Cr in cost savings by leveraging Ford manufacturing capacity. The company will start supplying G12 engines for Ford vehicles from Q1FY21. C-SUV development is on track and would result in saving of Rs 1000 Cr. B-SUV development is in planning stage and would result in similar saving.
  12. The timeline for new product launches in the next 2 years is:
    1. eKUV100- Q1FY21
    2. New Thar- Q1FY21
    3. Atom- Q2FY21
    4. W601 (which would be a crossover SUV)- Q4FY21
    5. Z101- Q1FY22
    6. eXUV300- Q2FY22
  13. Mahindra Electric is set to become EBITDA positive from FY21.

Investor Conference Call Highlights

  1. Mahindra Finance reported a PAT growth of 18% YoY.
  2. The company sees Russia and Vietnam as key export markets for SsangYong and the 3-year plan includes expansion into these territories for the Korean company.
  3. The BSVI transition is going smoothly for the company.
  4. The company is developing a new K2 platform for its tractor segment which will have four different tractor ranges or horsepower ranges and is designed for both domestic as well as international markets. This platform development is done with the help of Mitsubishi Agricultural Machinery in Japan.
  5. The management indicated that the supply disruption from coronavirus will have an impact only on BSIV vehicles and if the disruption extends beyond the start of March then the company may have to seek extra time to sell pending inventory whose production may get delayed. The number of the affected vehicles is expected to be 2400.
  6. The management has assured that the delay in achieving breakeven in SsangYong is only because of the demand slowdown in the global auto market and that the subsidiary has been cash positive since 2019. Most of the money out in this subsidiary is through subsidiary loans and internal accruals of SsangYong itself and the majority of the funds have been used for product development only. SsangYong is EBOTDA positive this year and the main reason for losses in this unit is depreciation.
  7. The management maintains that the improvement in operating margins are a direct result of the company’s efforts to drive material cost savings through various initiatives.
  8. The most important launch for the company in the near future is the eKUV100 where the company will be exercising aggressive pricing to capture the nascent EV market.
  9. In CV segment, the company will launch 5 new variants in the Furio ICV line in FY21.
  10. The first tractors from the K2 line are expected to be launched by the middle of 2021.
  11. In Jawa, the company is moving steadily ahead and increasing volumes. It is also preparing to launch new products from this unit in the near future.
  12. The company is currently selling close to 1500 electric 3 wheelers each month with 500 being Li-ion battery and 1000 being lead acid battery ones. The management is now confident of the commercial viability of the Li-Ion Treo model as with the FAME subsidies, the operational costs of a Treo is just slightly higher than CNG vehicles in this segment.
  13. The company is also launching the EKUV100 at an aggressive price point of Rs 8.25 Lacs which is commercially breakeven for an operator as compared to an IC vehicle.
  14. The investment impairment in SsangYong for the quarter was Rs 254 Cr at the consolidated PAT level.
  15. The company is welcoming for any investors to step up and invest into any of its electric vehicle divisions and SsangYong. It would be preferable to have a strategic partner for this but the company is also open to offers from financial partners as well.

Analyst’s View

Mahindra & Mahindra is the home-grown pioneer of the Indian Auto industry. They have perfected the art of making money on small volume platforms based on their expertise and low running costs. Despite the current auto sector slowdown, the company has performed resiliently and have shown their willingness to stay focused on the future. The company has done well to improve operating margins despite the current environment and is focused on its long term objective of leading the electric vehicle space in India. The company is also smoothly going on with its BSVI transition. The situation at SsangYong is not ideal at the moment with the current world auto market slowdown. But the company’s initiative on looking for partners to invest into this entity and share its burden looks to be a prudent and sensible decision. It remains to be seen how the world auto landscape will shape out to be given the slowdown and the heightened disruptions in the world from Coronavirus. Nonetheless, given the resilient performance of the company and its focus on improving operational efficiency and the upcoming line-up of product launches, Mahindra & Mahindra remains a good auto stock to watch out for, particularly at current valuation levels.


 

 

 

 

Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 11903.8 13834.9 -13.96% 13241.8 -10.10% 25145.6 27619.8 -8.96%
PBT 1648.59 2096.33 -21.36% 2736.4* -39.75% 4385* 3636.12 20.60%
PAT 1212.6 1649.45 -26.48% 2313.62 -47.59% 3526.42 2870.42 22.85%

 

Consolidated Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 24149.4 26125.5 -7.56% 26289.5 -8.14% 50438.9 52386.1 -3.72%
PBT 1105.8 2437** -54.62% 1441.9 -23.31% 2547.7 5251.95 -51.49%
PAT 368.43 1708.92 -78.44% 894.11 -58.79% 1262.54 3593.58 -64.87%

*Includes exceptional item of Rs 1367 Cr from gain on sale of shares by M&M benefit trust & gain on buyback of certain long term investments.

**Includes exceptional item of Rs 136.77 Cr which represents gain on disposal of an interest in subsidiaries and change of status of a subsidiary to a joint venture.

Detailed Results

  1. Q2 sales was down 14% YoY in standalone terms and down 7.5% YoY in consolidated terms, mainly on the back of industry decline.
  2. The PAT before exceptional items declined 18% YoY.
  3. Operating margins were down 40 bps YoY at 14.1% in Q2FY20.
  4. The domestic PV industry saw a decline of 26.6% YoY while CV fell 20.8% YoY.
  5. Auto export volumes were down 15% YoY.
  6. The company maintained its dominant market share in tractor space at 41.3%.
  7. Despite the volumes decline, the company has gained a slight market share in all of its segments.
  8. Tractor Exports were down 34.3% YoY due to tough global conditions.
  9. The company has entered into a JV with Ford Motors to develop, market and distribute Ford brand vehicles in India, and Ford brand and Mahindra brand vehicles in high-growth emerging markets around the world.
  10. In Mahindra USA, the company expects to breakeven by 2021 and start turning profitable by 2022.
  11. In SsangYong, despite positive growth in Q1CY19, Q2 and Q3 saw declines mainly due to slowdown in the domestic market as well as some of its key export markets.
  12. In Jawa, production has been ramped up to 5000 units per month.

Investor Conference Call Highlights

  1. The management has asserted that inventories at both plant and dealer levels are at their lowest ever.
  2. The UV industry saw positive growth with many new product launches from industry players.
  3. The management has guided that they will lower their revenue expectations for the year and are currently looking at a YoY decline of 7%-8%.
  4. October was good for EV sales with retail volumes at almost 2000 units for the month. Out of these, 1300 of the e-Alfa model, 600 of the Treo model and 150 of the e-Verito model.
  5. The management believes that after BS-VI comes into place, in 1.5-litre engine SUVs the proportion of diesel units may rise while in the compact SUV segment with 1.2-litre engines, diesel units will no longer be made.
  6. The company has 3 upcoming product launches starting from Q1FY21 and 2 EVs which include an electric KUV in Q4FY20. The company should also be able to bring the all-electric XUV300 in the market by Q1FY22.
  7. In the small CV segment, the company was able to climb to 50% market share that it used to enjoy around 2-3 years ago. It saw strong growth in volumes in the pickup segment with its highest ever monthly sales volume of 22000 units in October.
  8. In the LCV segment, the company maintains its market share close to 9.5% while the market share in the truck segment remains subdued due to the segment slowdown.
  9. The management mentioned that consumers may require BS-VI diesel around 6-8 weeks before 31st March. The company will start shipping BS-VI vehicles from January onwards but they will refrain from selling these units until the adequate fuel becomes available in the market.
  10. The company has decided to get out of the small CV passenger vehicles for a while since the safety and emission requirements in such vehicles may easily push the costs up by more 33% which would make the product unviable.
  11. The management firmly believes that the three-wheeler industry will be entirely CNG or electric in a few years. They believe that the electric three-wheeler is very competitive in terms of costs to the CNG three-wheeler and so it may get rapid adoption going forward.
  12. The company did moderate discounting in the Diwali period with discounts of only around Rs 1000-1500 more as compared to last year. This was done primarily to maintain gross margins during this difficult period for the auto industry.
  13. The tractor segment is expected to be slow in the next quarter but it should get better from February onwards.
  14. The management has stated that in SsangYong, the main reasons for the bad performance were:
    • A slowdown in SsangYong’s major export markets
    • A shift in Korea towards gasoline increased the development costs for the company since SsangYong is a diesel dominated company much like M&M.
  15. The management is looking at other avenues like cost reduction and other export markets to enter to bring SsangYong to normalcy.
  16. The main reasons for the gross margin improvements in the quarter for the company are reduction in raw material prices, improved model mix, and a slight selling price increase.
  17. The management expects UV growth to continue to outpace passenger car growth for them going forward.
  18. The management expects passenger vehicle growth to be around -5% for H2FY20.
  19. The management has stated that SsangYong needs an annual sales volume of 140,000 to be EBITDA positive and 155,000 to be PBT positive. In the domestic Korean market, the company does volumes of almost 105000 thus the rest is to be covered by export markets. Thus the management believes that once they start in a few export markets with volumes of 8000-10000, they should be comfortably above the line.
  20. The -5% guidance above is based on the following assumptions: 10% growth in UV in the second half and about 12%, 13% degrowth in the passenger car in the second half and taking a 2:1 ratio passenger car and UVs which will lead to a minus 5% for the passenger vehicle.
  21. The management believes that the answer to the much stricter CAFÉ norms in FY23 is going to be going electric for the company. They believe that going forward the cost reduction in making electric vehicles should happen from battery costs going down as supply for batteries goes up on an industry level.
  22. The management believes in the company’s ability to stay competitive and develop more efficient diesel engines and maintain that they expect the company to remain largely diesel in the long term.
  23. The company has delivered all orders of JAWA before the close of the online booking by Diwali and in the near future, even BSA and one other brand will be available for sale.

Analyst’s View

Mahindra & Mahindra are the homegrown pioneers of the Indian Auto industry. They have perfected the art of making money on small volume platforms based on their expertise and low running costs. Despite the current auto sector slowdown, the company has performed resiliently and have shown their willingness to stay focused on the future. Diwali sales have been better than last year for the company and with the help of raw material cost reduction and a slight increase in selling prices, the company has been able to improve its gross margins. The challenges pointed out by the management of the unavailability of BSVI fuel remain out of their hand but hopefully, this will get resolved soon. Given the resilient performance of the company’s different segments, M&M remains a good auto sector stock to watch out for.


 

Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 12923 13520 -4.42% 14035 -7.92%
PBT 2736.4* 1731.8 58.01% 1217 124.85%
PAT 2313.8 1221 89.50% 848.8 172.60%

 

Consolidated Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 26289.5 26260.6 0.11% 27184.2 -3.29%
PBT 1441.9** 2814.88 -48.78% 1705.5 -15.46%
PAT 894.11 1884.66 -52.56% 915.28 -2.31%

*Includes exceptional item of Rs 1367 Cr from gain on sale of shares by M&M benefit trust & gain on buyback of certain long term investments.

**Includes exceptional item of Rs 136.77 Cr which represents gain on disposal of interest in subsidiaries and change of status of subsidiary to joint venture.

Detailed Results

  1. Q1 performance was down 4% YoY in standalone terms and up 0.1% YoY in consolidated terms, mainly on the back of industry decline.
  2. The standalone PAT before exceptional items declined 26% YoY while the consolidated number fell 43% YoY without EI.
  3. Operating margins have fallen 180 bps YoY to 14% in Q1FY20.
  4. Domestic PV industry saw a decline of 18.4% YoY while MHCV fell 18.6% YoY.
  5. Tractor volumes for the industry also fell 14.6% YoY on the back of the delayed monsoon.
  6. The company maintained its dominant market share in tractor space at 42.9%.
  7. Despite the volumes decline, the company has gained a slight market share in all of its segments.
  8. Q1 export volumes down 20% YoY. South Asia declined 61% while Africa excluding South Africa and Rest of the world declined 49% YoY. South Africa and Europe grew by 56% and 137% YoY respectively.
  9. Tractor Exports were up 1.2% YoY despite the tough global conditions.
  10. In Mahindra USA, the company expects to breakeven by 2021 and start turning profitable by 2022.
  11. In SsangYong, the company is focused on domestic market share growth and targeting specific export markets along with cost optimizations.
  12. In Peugeot Motorcycles, the company expects to be EBITDA positive in one year.
  13. In the EV segment, the company now has more than 5000 EVs on road currently.

Investor Conference Call Highlights

  1. The management does not expect too big a hit in D&A from BS-VI norms next year as the price increases will also cause revenues to rise thus making the overall effect small.
  2. According to the management, the main concerns for the current environment for the company and the industry are:
    • Tighter liquidity norms which have reduced the target segment size of financing customers. Although this is good for the industry in the long term it is something which will disrupt the market in the short term.
    • LTV or Loan to Value ratio remains a concern for the company.
    • Transaction costs concerns due to insurance costs going up.
  3. The management hopes to see growth in the second half of FY20 as the base of H2FY19 was smaller and the onset of the festive season should revive some demand in the market.
  4. In terms of numbers, M&M has performed well with the lowest decline in the domestic auto industry (a decline of 2-3% as compared to the industry decline of 14-15%).
  5. The company has managed to maintain a good market share in tractors and also preserve their gross margins in this segment despite the industry decline of more than 14%.
  6. The management believes that the worst is over for the tractor segment and they expect to see 6-8% growth in this segment in the next 8 months which should bring the overall yearly volume growth as flat. There is a chance for upside should the rabi season go better than expected.
  7. The management will refrain from providing any guidance for the PV segment as the current industry slowdown is expected to require some big turnaround to bring the industry back on track.
  8. The management is optimistic of their prospects in the EV space mainly from their product pipeline and the latest GST cut for EVs.
  9. The management assures that there aren’t any problems in dealer financing in their dealer network and their inventory level is at comfortable levels without putting any pressure on dealer financials.
  10. The company is optimistic of SsangYong and believe that any volume shrinkage in M&M can be mitigated by volume growth in SsangYong. The company is also targeting specific export markets especially for sales of Alturas G4 which should also help SsangYong.
  11. The company has benefited from lower commodity prices but they have hiked prices for both auto and tractor units as they had not done the price increase when commodity prices shot up last year.
  12. The management expects the raw material costs to further decline going forward mainly due to the current industry decline.
  13. The company is not developing a digital diesel engine in the 1.2 litre segment mainly because the % cost increase will be too high. Post BS-VI the management expects a shift towards petrol from the current ratio of 75:25 of diesel to petrol in the 4-meter segment.
  14. In XUV and above segment, the diesel engine is expected to remain the prime seller as the % increase in costs will not be as prohibitive as in smaller sizes.
  15. Post BS-VI, the company will optimize pricing to keep volume, profit, and profitability at comfortable levels.

Analyst’s View

Mahindra & Mahindra are the homegrown pioneers of the Indian Auto industry. They have perfected the art of making money on small volume platforms based on their expertise and low running costs. Despite the current auto sector slowdown, the company has performed resiliently and have shown their willingness to stay focused on the future. The company has a few subsidiaries which are burning cash at the moment and it remains to be seen whether these operations will start making a profit in the time frame expected by the company. Nonetheless, given their decent performance, Mahindra & Mahindra remains a resilient auto sector stock which every investor interested in UVs, Tractors or electric vehicles should keep an eye out for.

 

Q3 2019 Updates

Financial Results & Highlights

Standalone Financials (In Crs)

Q3FY19 Q3FY18 YoY % Q2FY19 QoQ % 9M FY19 9M FY18 9M% Change
Sales 13411 11676 14.86% 13835 -3.06% 41031 37002 10.89%
PBT 1280 1584 -19.19% 2096 -38.93% 5108 4561 11.99%
PAT 1077 1216 -11.43% 1649 -34.69% 3947 3297 19.71%

Consolidated Financials (In Cr)

Q3FY19 Q3FY18 YoY % 9M FY19 9M FY18 9M% Change
Sales 26236 22623 15.97% 78622 68560 14.68%
PBT 1913 4643 -58.80% 7165 8173 -12.33%
PAT 1563 3758 -58.41% 5208 6842 -23.88%

 

Detailed Results

  1. This quarter saw highest ever Q3 revenues and PAT for M&M and MVML combined.
  2. OPM was down 150 bps at 13.7%, mostly due to commodity cost pressure, higher discounts and new launch expenses.
  3. The farm equipment segment saw highest ever Q3 revenue and PBIT.
  4. The automobile segment also saw highest ever Q3 revenue but profits fell 23% YoY.
  5. The main reasons for this are the same as the one causing OPM margins to go down.
  6. In consolidated basis, the PBT and PAT have seen big contractions of more than 58% YoY. This mainly due to the high base figure that got inflated due to an exceptional item of Rs 2669 Cr last year.
  7. The volume growth figures for M&M+MVML are:
    • Utility Vehicles: -0.6%
    • Vans & Cars: 4%
    • LCV <2T: 5%
    • LCV 2T to 3.5T: 4%
    • LCV >3.5T: 8%
    • LCV Passenger: -22.5%
    • MHCV: -21.6%
    • 3W: 1%
    • Domestic Total: 6%
  8. Automobile Exports have grown 37% YoY while Tractor exports have gone down 38% YoY.
  9. Initial responses for new products Marazzo and XUV300 have been really good.
  10. In the electric vehicles segment, M&M is set to launch Treo, which shall be India’s first 3 wheeler product with Li Ion battery, which should generate huge demand as after considering govt subsidies and benefits, Treo is more profitable as compared to conventional CNG 3 Wheelers for end customers.
  11. Their lead acid battery vehicle Alfa is doing good with a monthly run rate of 800-1000 units.

Investor Conference Call Highlights

  1. Revenues for current quarter grew 14% QoQ with automobiles growing at 11.1% and tractors growing at 10.4%.
  2. Faced major cost headwinds which brought down margins and profits.
  3. Saw 10% volume growth in automotive segment which was the best in class growth.
  4. The smaller LCV segment was the outperformer with 41% growth in the quarter and 56% growth in the 9MFY19.
  5. Planning to invest around 200 to 300 billion KRW for the next few years in their Korean subsidiary SsangYong.
  6. Management is expecting good demand for Marazzo and XUV300 based on the high no of inquiries and bookings confirmed.
  7. Management does not anticipate any big changes to business segment particularly commercial vehicles because of the upcoming general elections.
  8. Management describes BS-VI deadline of 31st March 2020 as a Y2K event because of the uncertainties regarding it. Thus they are looking to sell and up all the BS-IV stock they have till that date and move forward and manufacture according to the new standards defined in BS-VI.
  9. The first BS-VI vehicle can be expected to be completed by Dec 2019 and selling of them would commence by the next month in Jan 2020.
  10. The management is very confident of their electric 3 wheelers segment.
  11. They estimate that with their new product Treo, an average commercial vehicle operator can save Rs 2000 to 3000 a month as compared to a conventional CNG 3 wheeler.
  12. They are already 300-400 Treos per month currently and have obtained demand commitment for 2000, 3000, 4000 units from different fleet operators.
  13. They will continue to operate the lead acid 3 wheelers under M&M and will be selling the Li Ion 3 wheelers under Mahindra Electric.
  14. Management do not believe that their new product Marazzo is cannibalizing their existing Scorpio and Bolero products.

Analyst’s View

Mahindra & Mahindra has been one of the leading automobile makers in India for a long time now. They are still the dominant player in the farming equipment segment and continue to reinforce their dominant market share in the commercial vehicles segment. The management of the company is also very proactive in being prepared to address the next big event in the auto industry which is the change in automaking norms in BS-VI. M&M is also ahead of the rest of the market in capitalizing on the push towards electric vehicles with their new product offerings in the electric 3 wheeler segment which should help them capture the market pretty fast compared to their rivals who are still developing such a product.

The Cabinet Committee of Economic Affairs (CCEA) has approved a Rs 10,000 crore package for the second phase of Faster Adoption & Manufacturing of Electric (and hybrid) vehicles (FAME) scheme on February 28. “Starting from 1st April 2019, the second package will continue for three years till 31st March, 2022,” Union Finance Minister Arun Jaitley said.

FAME scheme was started in 2015 to incentivize the manufacture of electric vehicles. Incentives up to Rs 22,000 were available for two-wheelers, Rs 61,000 for three-wheelers and Rs 1,87,000 for four-wheelers were provided. The scheme was initially implemented for one year, which was later given three extensions. This is a positive news for the company.

All in all, Mahindra & Mahindra represents a solid bet for long term investors banking on the automobile market particularly the electric vehicle segment.

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