Mahindra and Mahindra recovery seen in 2017: Motilal Oswal

3QFY17 volumes increased ~2% y-o-y (+7% q-o-q), driven by growth of 22% y-o-y (+24% q-o-q) in tractors but 8% y-o-y decline in automobile sales. Realisations declined 2.5% q-o-q (-1% y-o-y) to R536k (est. of R530k). Net revenues grew 16% y-o-y to R101.7b

M&Ms volume growth moderated to 2% y-o-y (+7% q-o-q). The robust 22% y-o-y (+24% q-o-q) growth in tractors was partially offset by weak automobile sales that fell 8% y-o-y. The impact of demonetisation led to weaker automobile sales, while tractor growth too moderated in December.

In automobile segment, UVs declined 7% y-o-y (-2% q-o-q), while 3Ws were the worst hit with 12% y-o-y (-13% q-o-q) decline. Market share in the UV segment, which kept declining from 41% in 4QFY16 to 27% in 2QFY17, rebounded during the quarter to 28.4%.

Automotive realisations were at R525K, a decline of 1% y-o-y, while tractor realisations too declined 1% y-o-y mainly due to the sale of agri business to its wholly-owned subsidiary. As a result, net revenues grew 1% y-o-y (+4% q-o-q) to R105.8b. EBITDA margin declined 70bp q-o-q (-20bp y-o-y) to 13.7% impacted by higher RM costs (+150 bp q-o-q) impact of which was diluted by lower other expenses.

The company sees recovery in Jan 2017 compared to the previous 2 months. According to the management, PVs were the least affected while 2Ws and tractors were the worst hit. It expects full recovery by April with rural recovering, while urban has almost recovered.

Mahindra India