Global brokerage firms such as Credit Suisse and Deutsche Bank maintained their positive view on Mahindra & Mahindra (M&M) post Q3 results but reduced their 12-month target price to factor in lower margin.
Mahindra & Mahindra (M&M) and Mahindra Vehicle Manufacturers (MVML) reported a growth of 60 percent (year-on-year) in its net profit for the December quarter at Rs 1,476 crore.
The company had posted a net profit of Rs 920 crore during the same quarter last year. Revenues grew 12 percent at Rs 12,892 crore against Rs 11,492 crore last year.
Meanwhile, the operating margin fell to 13.2 percent from 14.7 percent last year. A one-time loss has been reported at Rs 80 crore.
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“We expect M&M to face similar margin pressure on account of turbulence in the rural economy, intensifying competitive environment in domestic UV space and slowing down of tractor industry,” Mitul Shah, Vice President- Research, Reliance Securities said.
“In view of the government’s rural focus and company’s new product launch, we remain positive on M&M. Post sharp price correction, stock looks attractive at current valuation,” he said.
Most analysts at top brokerage firms are of the view that the valuations remain constructive for M&M, however, margins are likely to remain on the soft side. But, despite the cut in target price, the stock could still rally 24-30 percent.
Credit Suisse maintained its outperform rating on M&M post December quarter results but reduced its target price to Rs 890 from Rs 1,020 earlier, factoring in soft Q4 in term of margins.
The global investment bank also slashed growth forecasts by 5-9 percent. It maintains an outperform rating as valuations remain attractive especially after recent correction.
The management slashed its tractor guidance for FY19 from 12-14 percent to 10 percent. The auto major is ready for BS-6 transition.
The tractor revenue grew 13 percent at Rs 4,634 crore against Rs 4,098 crore reported last year. Tractor EBIT rose 6 percent to Rs 888 crore, while the margin was reported at 19.2 percent.
Automotive revenue rose 11.3 percent at Rs 7,915 crore. The segment’s EBIT fell 23 percent to Rs 461 crore. The automotive EBIT margin at 5.8 percent versus 8.4 percent (YoY).
Deutsche Bank maintained its buy rating on M&M post Q3 results but slashed its target price to Rs 815 from Rs 850 earlier.
The auto major is moving to lower growth/margin but the relative valuations are still supportive. The global investment bank expects a slight improvement in FY20 auto margin. It is factoring in lower FY19-21 tractor volume forecasts by 3-4 percent.
Deutsche Bank slashed FY19/20/21 EBIT forecasts by 8%/7%/4%. It raised FY19 EPS forecast by 12 percent and change FY20/21 by -1%/+2%.
Here’s how other brokerage firms reacted post M&M Q3 results:
JP Morgan: Overweight| Target: Rs 900
JP Morgan maintained its overweight call on JPMorgan post Q3 results with a target price of Rs 900. The operating earnings miss was largely on the weak auto margin, and the tractor growth outlook seems to be moderating.
The moderation in the Tractor India growth was weighed down by downward revision in industry growth guidance. The Tractor India growth guidance was cut to 10 percent for FY19 from 12-14 percent. The FY20 tractor growth will likely see mid-single digit growth.
BNP Paribas: Buy| Target: Rs 890
BNP Paribas maintained its buy rating on M&M post December quarter results with a target price of Rs 890. The stock remains JP Morgan’s cyclical pick given near-term visibility. The positive takeaway is that the core auto business trades at an attractive 11x 1-yr forward PE.
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First Published on Feb 11, 2019 09:32 am