Buy Mahindra and Mahindra; target of Rs 878: Prabhudas Lilladher
Prabhudas Lilladher’s research report on Mahindra and Mahindra
M&M’s performance over Q3FY19 missed our estimates, with operating margins at 12.4%, as against PLe of 13.3%. The recently launched Marazzo has been received well, with order book currently at ~13k units, however the overall decline in overall passenger car market especially in the UV segment has hampered M&M’s existing UV portfolio. M&M’s Tractor and Pick-up segment continue to do well, however the rural demand has been a little tepid in comparison to H1FY19 and after a high double digit growth over the last 30 months we expect demand to slow down a tad, we reduce our FY19E tractor volume estimates to 1o% (earlier 14% YoY). In the near term we expect margins to be under pressure due to the upcoming UV launches (S201, Alturas) in H2FY19, however for the longer term up-tick in margins largely depends on the success of these models as they would not only boost volume growth but provide operating leverage benefits as well. Increased government focus on rural economy could further accelerate growth for both, Farm and Auto segment.
We maintain ‘BUY’ with a price target of Rs878 (earlier Rs984), based on a core PE of 15x Sep’21E and value of subsidiaries at Rs268.
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