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  • 11 Nov 2021
  • ICICIdirect Research

M&M POSTS MIXED PERFORMANCE IN Q2FY22; REPORTS RS 1,000+ CRORE STANDALONE PAT AFTER SEVEN QUARTERS

M&M - 2975 Change: 83.55 (2.89 %)

What’s Buzzing: Mahindra & Mahindra (M&M) reported mixed Q2FY22 results wherein ASPs surprised positively while blended margins disappointed due to sharp gross margin contraction.

Context: Net standalone sales grew 13.1% QoQ to Rs.13,305 crore amid 17.1% QoQ automotive volume increase to ~1.02 lakh units and 11% tractor volume decline to 88,920 units. EBITDA margins were at 12.5% (down 140 bps QoQ). PAT at Rs.1,432 crore was a beat on our estimate of Rs.1,073 crore despite a miss at the absolute EBITDA level mainly due to much higher than anticipated other income, which was at Rs.1,105 crore tracking dividend from subsidiaries amounting to Rs.852 crore. M&M reported exceptional loss of ~Rs.255 crore in the quarter, due to impairment provision for long term investments.

Our perspective: Revenue beat tracked positive surprise in automotive ASPs, which jumped by 11.8% QoQ to ~Rs. 7.79 lakh/unit while tractor ASPs rose 3.6% QoQ to Rs.5.51 lakh/unit. Margin performance was lower than estimated due to more than expected depletion in gross margins (down 320 bps QoQ vs. our estimate of 70 bps decline). The company recorded healthy operating leverage gains, however. Going forward, M&M is expected to experience mix normalisation in favour of automotive amid limited tractor growth prospects due to high base and e-commerce led tailwinds for LCVs. Model mix within automotive would be dictated, to an extent, by ongoing semiconductor shortages, although strong order-book (~1.6 lakh units, including >70,000 bookings for XUV700) is encouraging. M&M aims to make market share gains in UVs while being proactive in EVs through new launches in fully electric PV & LCV domain while maintaining its market leadership in electric 3-W space. The company’s focus on prudent capital allocation (18% RoCE vision) and improving financials at its key subsidiaries.