M&M Q3 Results Review – Improving Outlook On Auto Segment Driving Up Valuation: ICICI Securities


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Mahindra and Mahindra Ltd.’s Q3 FY23 Ebitda margin at 13% (up 100% basis points QoQ) was inline with our estimates with auto/farm equipment segment Ebit margins at 6.7%/16.6%.

M&M’s gross margin expanded by 50 bps QoQ and the rest was led by operating leverage. FES segment average selling price has increased from Rs 530,000-560,000/unit a year back, to ~Rs 590,000/unit at present led by price hikes to pass on input cost inflation.

Yet, Ebit per unit remained static at ~Rs 98,000/unit, resulting in segmental Ebitdm declining from ~20% levels to ~16-17% in recent quarters. This is because of inability to hike prices on the per unit profit part, in sync with cost inflation. Thus, we are building-in 18% FES Ebitm in FY24E versus long-term mean levels of ~19-21%.

Per month order addition for key models XUV700, Scorpio N and Thar is more than current monthly production levels.

Thus, we believe capacity addition of ~12,000 unit per annum for these models together in mid-FY24 would drive ~25% volume growth for its utility vehicle portfolio in FY24, implying monthly average of ~38,000 units.

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