CMP 1230.50

Target Price 1354.00

ISIN: INE101A01026

MAY 31st

2014

MAHINDRA & MAHINDRA LIMITED Result Update (PARENT BASIS): Q4 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Automobile

BSE Code 500520

Face Value 5.00

52wk. High / Low (Rs.) 1264.65/741.50

Volume (2wk. Avg.) 91000

Market Cap (Rs. in mn.) 726388.76

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 405085.00 453695.20 499064.72

EBITDA 54392.00 61910.52 67728.22

Net Profit 37583.50 39914.75 42544.38

EPS 63.67 67.62 72.07

P/E 19.33 18.20 17.07

Shareholding Pattern (%)

1 Year Comparative Graph

MAHINDRA & MAHINDRA LTD S&P BSE SENSEX

SYNOPSIS

During the quarter, Mahindra & Mahindra Ltd Net Profit after exceptional items and tax stood at Rs. 8968.8 mn as against Rs. 8891.9 mn in Q4 FY14.

During Q4 FY14, the Gross Revenues and Other Income of M&M was Rs. Rs.117647 mn as against Rs. 113658 mn during Q4 FY13.

During Q4 FY14, the Gross Revenues and Other Income of M&M and MVML (Entity) is Rs. Rs. 112972 mn as against Rs. 113423 mn in Q4 FY13.

Net Profit after exceptional items and tax for the quarter of Entity is Rs. 9677 mn against Rs. 9629 mn in Q4 last year.

Excluding Truck business of MTBL, net profit after tax for the quarter is Rs 9756 mn and the Operating Margin is 14.0%.

In the Passenger Utility Vehicle segment, the Entity sold 60900 vehicles in the current quarter with a market share of 43.3%. The Entity also exported 8335 Vehicles in the current quarter.

In Q4 FY14, the Company’s domestic sales at 52732 tractors grew by 14.4% over the 46107 tractors sold in Q4 last year.

Company’s market share was 37.9% as against 37.1% in Q4 last year. Mahindra Powerol posted net revenue of Rs. 2175 mn in Q4 FY14.

During the quarter, the Scheme of Arrangement for the merger Mahindra Trucks and Buses Ltd. (MTBL) with M&M was approved by the Honourable High Court of Bombay.

M&M has recommended a dividend of Rs.13.50 per share and a special dividend of Rs. 0.50 per share of face value Rs. 5.00 aggregating Rs. 14.00 for the year ended March 31, 2014.

Net Sales and PAT of the company are expected to grow at a CAGR of 7% and 8% over 2013 to 2016E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Mahindra & Mahindra Ltd 1230.50 726388.76 63.67 19.33 4.33 280.00

Maruti Suzuki India Ltd 2269.50 685570.70 92.13 24.63 3.21 240.00

Tata Motors Ltd 415.45 1337194.50 1.04 399.47 6.99 100.00

SML Isuzu Ltd 424.50 6143.20 12.02 35.32 2.18 30.00

Analysis & Recommendation - ‘BUY’

The Gross Revenues and other income of Mahindra & Mahindra Ltd. and MVML (Entity) during the quarter ended

31st March 2014 is Rs. 112972 mn as against Rs. 113423 mn in the previous year. Net Profit after exceptional

items and tax for the current quarter is Rs. 9677 mn against Rs. 9629 mn in Q4 last year. Excluding the Trucks

business of MTBL, net profit after tax for the quarter is Rs 9756 mn and the Operating Margin is 14.0%. The

deceleration in the Gross Revenues in the quarter is due to the challenging times the Indian auto industry is

currently passing through with volumes shrinking by 11.6% in Q4 FY14. Despite this, the entity could deliver a

healthy Operating Margin and a growth in its profits in the quarter due to a strong sales performance by its Farm

Equipment Sector and a tight control on material costs and all expenses.

The Gross Revenues and Other Income of Mahindra & Mahindra Ltd for the quarter ended 31st March 2014 is

Rs.117647 mn as against Rs. 113658 mn during the corresponding period last year. The Net Profit after

exceptional items and tax for the current Q4 is Rs. 8968.8 mn as against Rs. 8891.90 mn in the same period.

In the Passenger Utility Vehicle segment, the Entity sold 60900 vehicles in the current quarter with a market

share of 43.3%. In the Cars segment, the Entity sold 1633 Veritos. The Entity also exported 8335 Vehicles in the

current quarter. In the wake of a good monsoon, the domestic tractor industry continued to show robust growth

with sales of 138567 tractors in Q4 FY14 against 123767 tractors sold in Q4 last year - a growth of 12.0%. In this

period, the Company’s domestic sales at 52732 tractors grew by 14.4% over the 46107 tractors sold in Q4 last

year. Company’s market share was 37.9% as against 37.1% in Q4 last year. Mahindra Powerol posted net

revenue of Rs. 2175 mn in Q4 FY14. Over FY2013-16E, we expect the company to post a CAGR of 7% and 8% in

its top-line and bottom-line respectively. Hence, we recommend ‘BUY’ for ‘Mahindra & Mahindra Ltd’ with a

target price of Rs. 1354.00 for medium to long term investment.

QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q4 FY14,

Mahindra & Mahindra Ltd India’s leading SUV

manufacturer has a presence in the automotive

industry, agribusiness, aerospace, components,

consulting services, defence, energy, financial

services, industrial equipment, logistics, real estate,

retail, steel and two wheelers, reported its financial

results for the quarter ended 31st March, 2014.

Months Mar-14 Mar-13 % Change

Net Sales 110007.30 104865.30 4.90

Net Profit 8968.80 8891.90 0.86

EPS 15.19 15.06 0.86

EBITDA 10050.60 14524.90 (30.80)

The company’s net profit stood at Rs. 8968.80 million against Rs. 8891.90 million in the corresponding quarter

ending of previous year, an increase of 0.86%. Revenue for the quarter rose by 4.90% to Rs. 110007.30 million

from Rs. 104865.30 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 15.19 a share during the quarter, registering 0.86% increase over previous year period.

Profit before interest, depreciation and tax is Rs. 10050.60 million as against Rs. 14524.90 million in the

corresponding period of the previous year.

Break up of Expenditure

Break up of

Expenditure

Rs. in million

Q4 FY14 Q4 FY13 %

Change

Cost of Material

Consumed 57205.50 53653.30 7%

Employee Benefit

Expenses 6146.70 4424.00 39%

Depreciation &

Amortization Expense 2908.90 1986.00 46%

Other Expenses 13480.30 9403.80 43%

Purchase of Stock in

Trade 25919.40 24868.20 4%

Segment Revenue

Latets Updates

• During the current quarter, the Scheme of Arrangement for the merger of the Trucks business of the M&M’s

subsidiary, Mahindra Trucks and Buses Ltd. (MTBL) with M&M, was approved by the Honourable High Court

of Bombay.

• In the Passenger Utility Vehicle segment, the Entity sold 60900 vehicles in the current quarter with a market

share of 43.3%. In the Cars segment, the Entity sold 1633 Veritos. The Entity also exported 8335 Vehicles in

the current quarter.

• The domestic tractor industry continued to show robust growth with sales of 138567 tractors in Q4 FY2014

against 123767 tractors sold in Q4 last year - a growth of 12.0%. In this period, the Company’s domestic sales

at 52732 tractors grew by 14.4% over the 46107 tractors sold in Q4 last year.

• Company’s market share was 37.9% as against 37.1% in Q4 last year. Mahindra Powerol posted net revenue

of Rs.2175 mn in Q4 FY2014.

• Exceptional items of Rs. 527.9 mn for the quarter are on sale of certain long term investments.

• Mahindra & Mahindra Ltd has recommended a dividend of Rs.13.50 (270%) per share and a special dividend

of Rs. 0.50 (10%) per share of face value Rs. 5.00 aggregating Rs. 14.00 (280%) for the year ended March 31,

2014.

• India Ratings & Research (lnd-Ra, a Fitch Group Company) has assigned a Long-Term Issuer Rating of 'IND

AAA' to Mahindra & Mahindra Limited, with a ‘Stable’ outlook.

• The Agri division of Mahindra & Mahindra Ltd has signed a joint venture agreement with HZPC, Holland, one

of the leading innovative companies in the world in potato breeding, seed potato growing and seed potato

trading to offer the best quality seed potatoes to farmers within and outside India. The joint venture will have

Mahindra and HZPC holding 60 and 40 percent equity respectively in the company.

COMPANY PROFILE

A USD 16.7 billion multinational group based in Mumbai, India, Mahindra employs more than 180,000 people in

over 100 countries. M&M was set up in 1945 to make general purpose utility vehicles for the Indian market and

soon it started manufacturing agricultural tractors and light commercial vehicles (LCVs). Later the company

expanded its operations to secure a significant presence in many more significant sectors. M&M also has

controlling stake in REVA Electric Car Company and acquired South Korea's SsangYong Motor Company in 2011.

The company has separate sector as Mahindra Systems and Automotive Technologies (MSAT) to focus on

developing components and offering engineering services.

The Mahindra Group is well diversified in auto sector, auto component, farm equipment, infrastructure

development, telecom and software, trade and financial services. It is a leading name in the general purpose

utility vehicles market in India. The company has recently entered in the two-wheeler segment by taking over

Kinetic Motors in India.

Mahindra’s Farm Equipment Sector is also the proud recipient of the Japan Quality Medal, the only tractor

company worldwide to be bestowed this honor. It also holds the distinction of being the only tractor company

worldwide to win the Deming Prize.

Global presence

Today, M&M is the leader in the utility vehicle segment in India with its flagship UV Scorpio and enjoys a growing

global market presence in both the automotive and tractor businesses.

In addition to making groundbreaking UVs like the Scorpio and Bolero, Mahindra offers cars, pickups &

commercial vehicles that are rugged, reliable, environmentally friendly and fuel-efficient. Its global presence

means Mahindra vehicles on the roads of both paved and unpaved of Australia, Europe, Latin America, and

Malaysia & South Africa.

Products

The Mahindra & Mahindra Limited product portfolio are as follows:

� Commercial Vehicles

� Personal Vehicles

Commercial Vehicles

• Alfa

• Gio

• Genio

• Bolero Maxi Truck

• Loadking

• Maxximo

• Mahindra Navistar Trucks

• Tourister Buses

Personal Vehicles

• Bolero

• Scorpio

• Thar

• Verito

• Xylo

• Actyon Sports

• Chairman W

• Korando

• Kyron

• Rexton II

• Rodius

• REVA Electric Cars

• XUV 500

Stakes & Acquisitions

• SsangYong Motor Company

SsangYong was acquired by India's Mahindra & Mahindra Limited in February 2011 after being named the

preferred bidder in 2010 to acquire the bankruptcy protected company. It is the fourth largest South Korean

automobile manufacturer.

• Reva Electric Car

Mahindra Reva Electric Vehicles Private Limited is an Indian company based in Bangalore, involved in

designing and manufacturing of compact electric vehicles. The company has been acquired by Indian

conglomerate Mahindra & Mahindra in May 2010, and now operates as one of its parent's marquees.

FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March 31st, 2013 -2016E

FY13A FY14A FY15E FY16E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 2951.60 2951.60 2951.60 2951.60

Reserves and Surplus 143637.60 164960.30 194525.83 223704.71

1. Sub Total - Net worth 146589.20 167911.90 197477.43 226656.31

Non Current Liabilities

Long Term Borrowing 31724.40 37444.20 41937.50 45292.50

Deferred Tax Liability (Net) 6148.50 8896.50 10497.87 11757.61

Other Long term Liabilities 4154.00 5862.70 7035.24 7949.82

Long Term Provisions 4415.90 5103.30 5664.66 6117.84

2. Sub Total - Non Current Liabilities 46442.80 57306.70 65135.28 71117.78

Current Liabilities

Short Term Borrowing 546.30 7.40 8.14 8.95

Trade Payables 55797.10 60688.00 63722.40 66271.30

Other Current Liabilities 10521.70 11335.60 11902.38 12378.48

Short Term Provisions 14638.80 15636.90 16106.01 16750.25

3. Sub Total - Current Liabilities 81503.90 87667.90 91738.93 95408.97

Total Liabilities (1+2+3) 274535.90 312886.50 354351.64 393183.06

APPLICATION OF FUNDS

Non-Current Assets

a) Fixed Assets 58213.40 71053.90 82422.52 92313.23

b) Non- Current Investments 105715.00 97877.30 103635.39 110839.65

c) Long Term loans and advances 20874.70 30181.20 35613.82 40243.61

d) Other non-current assets 298.50 884.90 1106.13 1327.35

1. Sub Total - Non Current Assets 185101.60 199997.30 222777.86 244723.83

Current Assets

Current Investment 12619.60 15921.20 18787.02 21417.20

Inventories 24197.70 28036.30 31961.38 35796.75

Trade receivables 22083.50 25098.40 27859.22 30645.15

Cash and Bank Balances 17814.10 29503.90 36879.88 42780.66

Short-terms loans & advances 7634.00 9458.30 10971.63 12397.94

Other current assets 5085.40 4871.10 5114.66 5421.53

2. Sub Total - Current Assets 89434.30 112889.20 131573.78 148459.22

Total Assets (1+2) 274535.90 312886.50 354351.64 393183.06

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 404411.60 405085.00 453695.20 499064.72

Other Income 5491.70 7179.90 7467.10 7840.45

Total Income 409903.30 412264.90 461162.30 506905.17

Expenditure -356412.40 -357872.90 -399251.78 -439176.95

Operating Profit 53490.90 54392.00 61910.52 67728.22

Interest -1911.90 -2592.20 -3006.95 -3427.93

Gross profit 51579.00 51799.80 58903.57 64300.29

Depreciation -7108.10 -8633.40 -9928.41 -11119.82

Exceptional Items 0.00 527.90 0.00 0.00

Profit Before Tax 44470.90 43694.30 48975.16 53180.47

Tax -10942.70 -6110.80 -9060.40 -10636.09

Net Profit 33528.20 37583.50 39914.75 42544.38

Equity capital 2951.60 2951.60 2951.60 2951.60

Reserves 143529.20 164852.40 194525.83 223704.71

Face value 5.00 5.00 5.00 5.00

EPS 56.80 63.67 67.62 72.07

Quarterly Profit & Loss Statement for the period of 30th Sep, 2013 to 30th June, 2014E

Value(Rs.in.mn) 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14E

Description 3m 3m 3m 3m

Net sales 89295.70 105556.80 110007.30 114407.59

Other income 3606.30 946.40 984.90 1103.09

Total Income 92902.00 106503.20 110992.20 115510.68

Expenditure -77846.30 -91734.20 -100941.60 -100678.68

Operating profit 15055.70 14769.00 10050.60 14832.00

Interest -622.60 -633.30 -843.00 -775.56

Gross profit 14433.10 14135.70 9207.60 14056.44

Depreciation -1970.10 -1948.10 -2908.90 -2559.83

Exceptional Items 0.00 0.00 527.90 0.00

Profit Before Tax 12463.00 12187.60 6826.60 11496.61

Tax -2568.00 -2847.00 2142.20 -2333.81

Net Profit 9895.00 9340.60 8968.80 9162.80

Equity capital 2951.60 2951.60 2951.60 2951.60

Face value 5.00 5.00 5.00 5.00

EPS 16.76 15.82 15.19 15.52

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 56.80 63.67 67.62 72.07

EBITDA Margin (%) 13.23% 13.43% 13.65% 13.57%

PBT Margin (%) 11.00% 10.79% 10.79% 10.66%

PAT Margin (%) 8.29% 9.28% 8.80% 8.52%

P/E Ratio (x) 21.67 19.33 18.20 17.07

ROE (%) 22.89% 22.40% 20.21% 18.77%

ROCE (%) 33.90% 30.71% 30.01% 28.99%

Debt Equity Ratio 0.22 0.22 0.21 0.20

EV/EBITDA (x) 13.61 13.21 11.51 10.45

Book Value (Rs.) 248.14 284.26 334.53 383.95

P/BV 4.96 4.33 3.68 3.20

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.1230.50, the stock P/E ratio is at 18.20 x FY15E and 17.07 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.67.62 and

Rs.72.07 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 7% and 8% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 11.51 x for FY15E and 10.45 x for FY16E.

� Price to Book Value of the stock is expected to be at 3.68 x and 3.20 x respectively for FY15E and FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.1354.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

India represents one of the world’s largest car markets. Easy availability of finance and rising income levels are

encouraging the middle class population to choose from the vast range of passenger vehicles.

The Indian auto industry has been recording tremendous growth over the years and has emerged as a major

contributor to India’s gross domestic product (GDP). The industry currently accounts for almost 7 per cent of the

country’s GDP and employs about 19 million people both directly and indirectly.

In addition, with Government’s backing and a special focus on exports of small cars, multi-utility vehicles (MUVs),

two and three wheelers and auto components, the automotive sector’s contribution to the GDP is expected to

double reaching a turnover worth US$ 145 billion in 2016, according to the Automotive Mission Plan (AMP)

2006–2016.

Key Statistics

The auto industry produced a total 1.81 million vehicles, including passenger vehicles, commercial vehicles,

three wheelers and two wheelers in February 2014 as against 1.73 million in February 2013, registering a

growth of 4.41 per cent over the same month last year. The increase continues to be on account of growth in two

wheelers production. Moreover, the overall domestic sales during April–February 2014 grew marginally by 2.68

per cent over the same period last year.

The passenger vehicles production in India is expected to reach 10 million units by 2020–21. The industry is

estimated to grow at a compound annual growth rate (CAGR) of 13 per cent during 2012–2021. In addition, the

industry is projected to touch US$ 30 billion by 2020–21, according to data from Automotive Component

Manufacturers’ Association (ACMA).

The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during the period

April 2000 to January 2014 was recorded at US$ 9,344 million, an increase of 4 per cent to the total FDI inflows

in terms of US$, according to data published by Department of Industrial Policy and Promotion (DIPP),

Government of India.

The overall automobile exports grew by 6.39 per cent during April–February 2014. Passenger vehicles, three

wheelers and two wheelers registered growth at 6.44 per cent, 16.40 per cent and 5.41 per cent respectively,

compared to the same period last year.

Major Developments & Investments

• German auto maker Volkswagen is planning to expand production capacity and introduce a slew of new

models. The group is looking at investing Rs 1,500 crore (US$ 248.55 million) over the next five years to

set up a diesel engine manufacturing facility.

• Amtek Auto signed an agreement to buy Germany's Kuepper Group of companies for about Rs 16.78

billion (US$ 277.97 million) in December 2013, which was its second big European acquisition in 2013.

• Jaguar Land Rover (JLR) will scale up its production capacity to hit 700,000 units by FY 2017 riding on its

joint ventures (JV) in China and Brazil, as per analysts. JLR's capacity for 2014 is pegged at 450,000 units.

• Infosys has signed a multi-year contract with Volvo Cars to provide application development services to

the latter's global operations.

• JCB announced plans to relocate production of compaction equipment to factories in the UK and to Pune,

India, and close the Gatersleben site in Germany.

• Piaggio Vehicles Pvt Ltd, scooter and light commercial vehicle manufacturer, is planning to assemble its

super bikes locally, which it sells under the brand Aprilia.

Furthermore, India is expected to emerge as a centre for producing compact superbikes. Several global and

Indian bike makers plan to utilise India's mass production base of 16 million two wheelers to roll out sports

bikes in the 250cc capacity.

Government Initiatives

The Interim Budget 2014-15 added some incentives to the auto industry. To give relief to the automobile

industry, the excise duty has been reduced till June 30, 2014 as follows:

• For small cars, motorcycle, scooters – the duty has been reduced from 12 per cent to 8 per cent.

• For commercial vehicles and SUVs – the duty has been reduced from 30 per cent to 24 per cent.

• For large and mid-segment cars – the duty has been reduced from 27/24 per cent to 24/20 per cent.

The other incentives from Union Budget 2013–14 are as follows:

• The period of concession available for specified part of electric and hybrid vehicles till April 2013 has

been extended up to March 31, 2015.

• An exemption from BCD will be provided to lithium ion automotive battery for manufacture of lithium

ion battery packs for supply to manufacturers of hybrid and electric vehicles.

The Government of India allows 100 per cent FDI in the automotive industry through automatic route.

Road Ahead

The vision of AMP 2006–2016 expects India, “to emerge as the destination of choice in the world for design and

manufacture of automobiles and auto components with output reaching a level of US$ 145 billion; accounting for

more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016.”

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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