Buy at crash! M&M clocks new low, shares down 4%: N0w launches ahead make this automaker money making magnet

Bloodbath in M&M was despite, the company posting a robust Q3FY19 performance, with net profit rising by 60% to Rs 1,476 crore versus Rs 920 crore in Q3FY18.

In Q3FY19, M&M sold a total 1,33,508 vehicles up by 10% from 121,786 units in the corresponding quarter of previous year. Photo: Reuters

Investors in passenger carmaker Mahindra & Mahindra stock were taken aback on Monday’s trading session, as they continue to book profit. M&M stocks today dropped by over 4% after they clocked an all-time low of Rs 655.60 per piece on BSE. At around 1333 hours, M&M was trading at Rs 660.25 per piece down by 3.33% on the index. Bloodbath in M&M was despite, the company posting a robust Q3FY19 performance, with net profit rising by 60% to Rs 1,476 crore versus Rs 920 crore in Q3FY18. In fact, revenue from operation also remained stable at Rs 13,235 crore in this quarter, up by 14% from Rs 11,594 crore a year ago same period.

In Q3FY19, M&M sold a total 1,33,508 vehicles up by 10% from 121,786 units in the corresponding quarter of previous year. M&M said, “For Q3 F2019, the Indian auto industry (excluding two wheelers) posted a flat performance with a de-growth of 0.3%. This flattening of growth is driven by the Passenger Vehicle industry reporting a de-growth of 0.8% (UV segment de-growing 2.9%) and the MHCV goods industry de-growing by 8.2%. "

It added, “Passenger vehicle sales for the festive season (Sep+Oct+Nov) were not up to industry expectation primarily due to softening of urban demand. The urban sentiment was subdued largely on account of an uncertain economic scenario arising from the dollar rate movement, fuel prices and stock market performance.”

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The M&M stocks have witnessed a sharp correction and investors can take this an opportunity to buy them. Experts are very optimistic on M&M and its growth trajectory especially with new launches.

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Rating agency CLSA said, “M&M’s 3Q Ebitda (including MVML) was up just 1% YoY, a 9% miss, mainly driven by a lower-than-expected margin. 3Q witnessed the combined drag of higher commodity prices, lower introductory pricing for the new MPV Marazzo, higher product launch costs and increased discounts.”

The agency added, “We believe the impact of some of these factors will gradually ease in 1HFY20. M&M sounded uncertain about the tractor demand outlook for FY20 but said the upcoming compact SUV, the XUV3OO, is seeing a good initial traction.”

However, CLSA cuts FY19-21 EPS 1%-6% and see a modest 5% EPS Cagr for FY20-21, but says, “we find its valuation at a 9x FY20CL auto PEattractive. We retain our BUY rating but with a new Rs850 target price (previously Rs900).”

In Motilal Oswal’s view, “While we maintain our FY20/21 EPS estimates, we cut the core business multiple to 14x (v/s 15x) to factor in the uncertainties around tractor volumes and BS6 challenge. The stock trades at 15.2x FY20E and 14.2x FY21E EPS. Maintain Buy with an SOTP-based TP of INR841 (Mar’21E).”

Jay Kale and Vijay Gyanchandani analysts at Elara Capital said, “We believe M&M’s UVs volume growth to accelerate with the recent launches and upcoming XUV 300 in Q4FY19. While the UV portfolio is subdued till now, we are impressed with the LCV, M&HCV, 3W and export segments which have pulled up the YTDFY19 total automotive volume growth to 13%, despite UV growth being flat. We remain cautious on the tractor growth outlook for FY20-21E owing to cyclicality and have assumed a 4% CAGR over FY20-21E.”

The duo added, “While we are impressed by the fit-and-finish and features of XUV 300, pricing would remain key for its success initially, thereby impacting margins in short term. We reduce our FY19-21E standalone EPS by 9% to factor in margin cuts.”

Thereby, Elara says, “We recommend Buy with a revised SOTP-based target price of INR 893 from INR 988 earlier as we roll forward to FY21E EPS. M&M remains a key beneficiary of the Govt's increased focus on rural India with ~70% of core volumes coming from rural India.”

If buy at current price M&M, then you are set to get richer by 51% in this stock ahead.

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