Mahindra & Mahindra Q1FY23 Results: Bounces back with recovery in the auto sector

Mahindra & Mahindra Ltd is one of the most diversified automobile companies in India with presence across 2-wheelers, 3-wheelers, PVs (passenger vehicles), CVs (commercial vehicles), tractors & earthmovers. It also has presence across financial services, auto components, hospitality, infrastructure, retail, logistics, steel trading and processing, IT businesses, agri, aerospace, consulting services, defence, energy and industrial equipment through its subsidiaries and group companies.

It was incorporated in 1945 by Ghulam Mohammad and two Mahindra Brothers (KC & JC Mahindra) and was later renamed as Mahindra & Mahindra in 1948. The group has a presence across 22 industries, 100+ countries and operates 150+ entities on a consolidated basis.With a market capitalisation of 1.5 lakh crores the stock of Mahindra and Mahindra is one of the 50 listed companies in the NIFTY50 Index.

Major Divisions

Automotive division accounts for 55% of their revenue .The company has presence across various segments in the automotive industry and is the 4th largest passenger vehicle, 2nd largest commercial vehicle and largest light commercial vehicle (LCV) player in India.The company plans to launch 9 new SUVs and 13 new LCVs by 2027. Out of these, six vehicles will be EVs.

Farm Equipment Division accounts for approximately 41% of their revenues.The company is the dominant player in the local tractor Industry in India. Its brands include Mahindra, Swaraj and Trakstar.It has a market share of 40%+ in domestic tractor industry.It has maintained its leadership position for the last 40 years in the tractor industry in India.The company has a sizeable global farm business and is present in in 4 of the 5 largest markets in the world i.e. USA, Brazil, Mexico and Turkey.

Other / Allied Businesses which accounts for 4% of their revenue

Other Standalone Businesses

1. Mahindra Powerol – It is a leading power backup solutions provider to the telecom
2. Construction Equipment – Under this business, the company sells earthmoving, road construction and other
3. 2-Wheeler Business – The company also has minor presence in the 2-wheeler business and also owns iconic brands like ‘Jawa Motorcycles’ founded a century

Presently, the company has a total of 68 manufacturing facilities for production of Automotive, Tractors & farm machinery, two-wheelers and others. Out of these, 41 facilities are located in India and other 27 are located in various countries across the world like USA, Turkey, UAE, Algeria, etc.It also has R&D facilities in USA, China, Japan, India, Turkey, Finland, Italy, France and UK.

Mahindra & Mahindra has presence in various other businesses through its subsidiaries and group companies which are also listed. They are:

1. Tech Mahindra Ltd (~29% stake)
2. M&M Financial Services Ltd (~52% stake)
3. Mahindra Lifespace Developers Ltd (~51% stake)
4. Mahindra Holiday & Resorts India Ltd (~67% stake)
5. Mahindra Logistics Ltd (~58% stake)

Key Highlights of Mahindra & Mahindra Results , Q1FY23

• M&M has reported revenue of Rs 13,505 crore for Q1FY23, registering 15% YoY growth. Consolidated revenues showed a similar result, which is up YoY by 12% up at Rs 21,470 crores
• PAT rose 8x at Rs 1,432 crores from Rs 162 crores, but EBITDA has seen huge decline of 19% YoY
• The XUV700 launch has impacted the positive result as the model had an overwhelming response of 50,000 bookings in 3
• Farm equipment sector (FES) subsidiary of M&M reported 5th consecutive quarter of positive Profit before and interest and tax(PBIT).Tractor market share stands at 1% up 1.9 % compared to Q1FY22
• EV (electric vehicle) 3 wheelers volume with 68% market share up by 318% compared to Q1FY22
• Strong growth in export exports volumes: Farm up 105% (highest ever in H1); Auto up 86% compared to Q1FY22
• Porter, one of M&M’s new age digital platforms, valued at Rs.3,750 crores with an external funding round of 750 crores.
• Dr Ashish Shah , MD & CEO , M&M Ltd commented that their strong show in Auto and Farm sectors was complemented bi the improved performance in the group Investment in digital platforms are doing well and present a meaningful opportunity to create and unlock value.

15% spike in revenue reported by Mahindra & Mahindra

Mahindra & Mahindra results posted a steady performance in Q1FY23.Standalone net sales for the quarter were at Rs 19,613 crore (up 14.5% QoQ). Standalone EBITDA in Q1FY23 was at Rs 2,341 crore with corresponding EBITDA margins at 11.9%. Consequent standalone PAT for the quarter came in at Rs 1,430.2 crore, up 10.7% QoQ.

Automotive volumes for the quarter were nearly flat QoQ to 1.53 lakh units while tractor volumes recorded 63% QoQ increase to 1,18,509 units.For Q1FY23, automotive segment posted 10 bps increase in EBIT margins QoQ to 5.7% while tractor segment EBIT margins grew by 30 bps QoQ to 16%.

Mahindra & Mahindra ended the quarter results with >40% market share for its tractor division (up 0.9% QoQ). It also retained its market leadership in the electric 3-W category with market share pegged at 74.4% as of Q1FY23. The company is witnessing healthy demand traction across its product portfolio with present bookings pegged at 1.4+ lakh units (ex-Scorpio N) with XUV700 bookings pegged at ~0.8 lakh units. Newly launched Scorpio N received encouraging consumer response and crossed 25,000 units booking within a minute and ~1 lakh units in 30 minutes.

The company raised funding specific for its EV arm with valuation pegged at Rs 40,400-70,070 crore. M&M continues to be a key beneficiary of cyclical recovery under way in the commercial vehicle segment, need for personal mobility driving demand in the passenger vehicle segment and underpenetrated farm mechanisation domestically. Key factors, going forward, for the company are margin recovery especially post recent softness in steel prices domestically, production ramp up supporting the robust order bookings and timeline of new product launches on the EV front.

Management Commentary

Rajesh Jejurikar, Executive Director, Auto & Farm Sectors at Mahindra Group said that even though the volume is a constraint because of supply, they have to calibrate it to the fact that demand is significantly higher than supply. Supply is not that far off from what their current capacities and plans are.

On the quarter result he commented that ,”It was a very good quarterly performance from M&M’s standpoint. It is our highest ever revenue and we saw very high revenue growth even sequentially and the second highest PBIT for the auto commercial vehicles business. “

Mahindra & Mahindra post pandemic were affected by the supply mismanagement and shortage which was gradually sorted by quality managerial decisions.

Mahindra and Mahindra stock price: Technical Analysis

The stock of Mahindra & Mahindra has been showing an upward trend from the past five months.The chart follows a flag pattern has been moving within the parallel lines. Currently the Mahindra & Mahindra stock is moving towards a dip where the support range is between 1150-1200. If the stock is not be affected by any unforeseen incident, it would bounce back.The price that the stock is trading currently is impressively above the 50 and 100 days EMA which ensures the bullishness of the stock.The RSI here lies in the 65-67 range which gives scope for a dip and further retrace.

Our view

Mahindra and Mahindra has posted a good set of numbers in Q1FY23 results. There are many positive triggers for the company going forward. The response to its new models has been encouraging and the company has planned a line up of new models over the next two years. From next quarter, the price of raw materials like steel are coming down which will aid profitability. The issue of supply of semiconductors has also eased. In the automotive space, this is one stock that holds a good investment potential.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

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