M&M likely to see double digit fall in Q1 profit, EBITDA amid muted volume growth

Automobile company Mahindra and Mahindra is expected to see a double digit fall in its profit for the June quarter and operating income following subdued volumes. The results will be announced on August 7.

The stock lost 14 percent in the last three months, and 41 percent last year amid a slowdown in volumes over muted demand.

Brokerages expect the company to a report 18-22 percent year-on-year (YoY) decline in profit, and more than a 5 percent fall in revenue for the quarter that ended on June 2019 as its volumes declined 9 percent YoY (down 7 percent QoQ) to 2.18 lakh units.

During the quarter, utility vehicle volumes fell 5.9 percent YoY and 3-wheeler volumes increased 1 percent, while tractor volumes plunged 14.3 percent YoY. But brokerages expect realisation to improve by 3-5 percent due to product mix.

"With pick-ups being lower, we expect M&M's standalone revenues to dip 5.4 percent YoY / 9 percent QoQ," said Prabhudas Lilladher.

Motilal Oswal, which expects a 20 percent decline in Q1 profit and 7 percent fall in revenue, said it has cut its consolidated EPS estimates for FY20/21 by 12/7 percent as it cut volumes by 9/8 percent to factor in uncertainties in tractor volumes. It also cut margins by 40bps each to 13.9/13.5 percent due to change in mix (from tractor to UVs) and BS6 challenge.

For the quarter that ended in June, most brokerages expect EBITDA (earnings before interest, tax, depreciation and amortisation) to fall around 18 percent and margin to contract in triple digit YoY, dragged partly by lower tractor volumes.

"We expect EBITDA margin to decline by 220 bps due to negative operating leverage," said Kotak which sees 18.2 percent YoY decline in Q1 EBITDA and 22 percent fall in profit.

M&M's capex guidance for next three years is Rs 18,000 crore in which Rs 12,000 crore will be used for capacity expansion and product development while Rs 6,000 crore will be used for other investments.

Key issues to watch out for would be outlook for UV and tractor businesses for FY20 and FY21, update on response to the newly launched products, update on average discounts per unit during festivals, and update on new launches and timelines.