We hosted Mahindra & Mahindra (M&M) on the Edelweiss India CXO e-Convention 2021, US & UK version. Highlights: i) Capital funding steerage for FY22–24 at INR17bn – partly is discretionary and is guided by 18% RoE. ii) Momentum in tractors has began to revive, although auto has not but seen identical momentum; expects the identical with a lag. iii) UVs – clear deal with proper to win.
M&M continues to stroll the speak on two key ROIC drags (consult with (Mis)perceptions and Misfires)–UVs and subsidiary losses. Keep ‘BUY’ with SOTP-based TP of Rs 1,089.
Key takeaways: Administration guided core capex spend for subsequent three years shall be Rs 120bn· (beginning FY22) versus Rs 90bn guided earlier. Rs 30bn enhance is because of spend in the direction of EV. M&M additionally guided for INR5bn of investments – Rs 1.5bn in auto and farm subsidiaries and steadiness in group firms. The funding in group firms shall be through dividend and different monetisation of property.
Give attention to 18% RoE for funding stays. If capex or funding wants aren’t justifiable by underlying progress· drivers/RoE, administration is not going to pursue theme. Administration is assured of regaining market share in tractor/UV phase.·
Market share loss in FY21 was primarily as a result of supply-side points coupled with low stock to cater pent-up demand publish unlock of wave one among covid-19. It expects single digit business progress in tractor in FY22 (on excessive base of FY21).· The corporate is seeing sharp restoration in tractor demand in June publish unlock. It stays assured of 7-8% CAGR in tractor business over the subsequent 8-10 years.
Outlook and valuations: Development story intact; preserve ‘BUY’ As considerations round tractor volumes get addressed with uptick in agri economic system in addition to revival in its business automobile and UV demand, we anticipate the Road to recognise its robust franchise in tractors and business autos. Additionally, because the ROIC drags get addressed, the true franchise worth of the tractor and LCV enterprise shall be recognised. Moreover, ROIC drags will begin contributing to money movement post-restructuring. We preserve ‘BUY/SO’ with SOTP-based TP of Rs 1,089.