Mahindra & Mahindra (MM IN) - Q4FY23 Result Update - Market share gains continues

M&M’s 4QFY23 revenue came above our and consensus estimate, led by higher-than-expected ASPs (at Rs 809k, +5.3% QoQ). However, EBITDA margin at 12.4% came below our estimate of 12.8%, due to higher mix of auto segment and impact from farm machinery in FES segment. Management noted that commodity costs have softened and should support margins, but noted that semiconductor shortage continues to impact volumes at around c3k unit per month. MM guided for low signle digit growt in tractors led by positive enablers and government spending, furthermore, it aims to grow its farm machinery sales 10x by 2027 (c38% growth in FY23).

M&M should benefit, given (1) growing customer preference for SUV, (2) capacity ramp-up to fulfill strong order book, (3) market share gains in the tractor industry, (4) strong response to EV portfolio (XUV4OO). Also, benign RM, operating leverage and end of volume of introductory priced model would benefit margins (we buil-in 140bps expansion over FY23-25E). Our EPS estimates remain largely unchanged. Retain ‘BUY’ with TP of Rs 1,585 (18x on Mar-25E core EPS and Rs 331 for subsidiaries).

• 4QFY23 financial performance: (1) Standalone: Mahindra & Mahindra revenue at Rs 226bn grew by 4.2% QoQ and beat PLe (Rs. 214.4bn) and BBG estimates (BBGe) (Rs. 218.8bn) led by higher realization at automotive segment. EBITDA margin at 12.4% contracted by c60bps QoQ and came below PLe (12.8%) and BBGe (12.7%). Gross margins improved by 100bps QoQ while other expenses were higher than expected. APAT at Rs. 20.6bn beat PLe (Rs. 16.4bn) and BBGe (Rs. 16.5bn) led by higher other income and lower taxes. (2) Automotive segment: Revenue grew 11% QoQ, on higher volumes and realization. EBIT margin expanded to 7.3% (+c60bps QoQ). (3) Farm segment: Revenue de-grew by 11% QoQ on lower volumes partially offset by higher realisation, EBIT margin at 16.7% grew by 10bps QoQ largely offset by higher contribution from farm machinery segment.
• Key takeaways: (1) Farm Equipment: M&M noted that El Nino won’t be affecting tractor sales as other positive factors like good reservoir levels, good Rabi crop, improving terms of trade for farmers, increased spending in rural India to help the industry. They expect low single digit growth in tractor industy for FY24, and aim to gain market share. MM has launched “Naya Swaraj” with upgraded engine, ergonomics and power. MM will launch “OJA” based on global tractor platform to push exports markets and enhance portfolio; MM plans to increase export volumes by 1.6x by FY26. Farm machinery saw a growth of 38% YoY with 16.5% MS in rotovators and has launched medium segment Rotavator for further growth. (2) Automotive Segment: Orderbook stands strong at 292k bookings compared to 266k in 3QFY23 largely led by increase in Thar and XUV4OO. Cancellations at 8% has increased slightly from 5-7% cited in 3QFY23. Semiconductor issue still persistent with a loss of c3k units per month. In LCV <3.5 tonns launched Bolero Maxx to consolidate leadership. E-3W Q4 Market share at 67%. MM has increased capex outlay by Rs. 16bn towards capacity enhancement and regulatory upgradations.