Steady performance, healthy growth prospects amid thoughtful capex plans - M&M Q2 Review

What's Buzzing 

Mahindra & Mahindra (M&M) posted a steady performance in Q2FY23. The company reported highest Q2 volumes in the tractor segment with volumes in the auto segment coming in at all-time high on quarterly basis. It also reported EBIT margin improvement in both segments with leadership position retained in the tractor (41.5% market share as of H1FY23) as well as electric – 3-W space (67.2% as of Q2FY23). 

Context 

Standalone net sales for the quarter were at Rs 20,839 crore (up 6.3% QoQ). Standalone EBITDA in Q2FY23 was at Rs 2,496.4 crore with corresponding EBITDA margins at 12% (flat QoQ). Gross margin was flat QoQ. Consequent standalone PAT for the quarter came in at Rs 2,090 crore, up 46.1% QoQ, aided by higher other income amid dividend received from investee companies. Automotive volumes for the quarter were up 17.1% QoQ to ~1.8 lakh units while tractor volumes recorded 21% QoQ decline to 93,540 units (seasonality impact). Automotive ASPs were up 2.2% QoQ to ~Rs 8.2 lakh/unit with tractor ASPs were up 5% sequentially at Rs 5.9 lakh/unit. For Q2FY23, automotive segment posted ~42 bps increase in EBIT margins QoQ to 6.1% while tractor segment EBIT margins grew ~35 bps QoQ to 16.4%. 

Our Perspective 

M&M is India’s largest tractor manufacturer & prominent player in the CV and PV domain domestically. The company is witnessing healthy demand traction across its newly launched product portfolio in the SUV space with present bookings pegged at 2.6+ lakh units. The recent volume prints in this space were also encouraging with the company sustaining above the 30,000 monthly SUV sales mark. With thoughtful capacity expansion under way in this space to 39,000 monthly run rate by end of FY23 and 49,000 monthly run rate by end of FY24, we believed the company is well poised to deliver higher double digit volume growth in the automobile space. In the tractor space, on a high base and amid healthy monsoon 2022 as well as healthy water reservoir levels pan India, sales volumes are seen growing at mid-to-high single digit over FY22-24E. M&M is also well set to embrace upcoming EV trend by showcasing BEV product portfolio based on INGLOW platform & XUV 400 slated to be launched in January 2023. We believe that with technical knowhow available with company and ambitious target to sell ~20-30% of its SUV portfolio as electric vehicles (EVs) by 2027, it is well positioned for profitable and sustainable growth, going forward. Key monitorables for the company in the near term would be production ramp up supporting the robust order bookings, gross margin expansion amid decline in key commodity prices and market response to its EV offerings.