Mahindra and Mahindra Ltd
Margins surprise positively, maintain ACCUMULATE
ACCUMULATE
CMP: Rs 1,072 Target Price: Rs 1,265
M&M's 3QFY10 standalone performance was a mixed bag. Net sales at Rs 44.9bn was below our expectation of Rs 47bn due to lower other operating income (engine sales). EBIDTA of Rs 6.9bn was in line with expectation. EBIDTA margins at 15.2% surprised us positively vis a vis our expectation of 14.5% due to lower staff and other expenses. Our EBIDTA margin estimates were significantly below consensus. However, higher depreciation and tax rate (better outlook on profitability) resulted in net profits lower 11% below expectation at Rs 4.3bn.
We are marginally downgrading our FY10 and FY11 estimates by 2% and 4% to Rs 64 and Rs 66.5 per share to factor in higher than expected tax rate in 3QFY10. We have increased effective tax rate by 3% to 27% for FY11. We maintain our ACCUMULATE rating and retain our target price of Rs 1265 (Standalone business at Rs 940 (9x EV/EBIDTA) and subsidiaries at Rs 325).
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