M&M: Strong volume growth, maintain buy
- S/A net sales grew by 40% y-o-y to Rs92.5b (v/s est Rs84.6b), driven by volume growth of 14.4% y-o-y (-6.8% q-o-q) to 182,149 units (v/s est 180k). Realizations were up 7.4% q-o-q (22% y-o-y) at Rs507,173 (v/s est Rs468,645/unit) driven by a) product mix improvement (led by XUV5OO), b) price increase to offset cost pressures and c) benefit of weaker Rson exports.
- S/A EBITDA grew by 24% y-o-y (+14% q-o-q) to Rs11.1b (v/s est Rs9.1b), translating into EBITDA margins of 11.8% (v/s est 10.7%) driven by higher realizations and lower other expenses. Lower than expected interest cost, depreciation and tax further boosted S/A PAT at Rs7.3b (v/s est Rs5.4b).
- Incl MVML, EBITDA Margins declined by 30bps y-o-y (+180bps q-o-q) to 13.9% (v/s est 12.6%). PAT grew 26% y-o-y (-3% q-o-q) to Rs7.8b (v/s est Rs6b).
- The management has lowered its tractor industry guidance to upto 2% growth (v/s 5-6% earlier) for FY13. However, it maintained its guidance for UV volumes at 12-14%. Inventory, both in the tractor and UV business, remains at comfortable levels.
Valuation & view: EPS estimates are upgraded for FY13/FY14 for M&M+MVML by 9%/5% to Rs55.3/Rs61.2, and consolidated EPS by 8%/4% to Rs62/Rs81 respectively. The stock trades at 11.8x FY14 S/A EPS (incl MVML) and 8.8x FY14 consol. EPS. Maintain Buy with target price of Rs973 (FY14 SOTP).
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Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.
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