Automotive ASPs increased 6% q-o-q mostly due to a richer product mix. In terms of segments, automotive Ebit margin came in at 4.1% (-470 bps y-o-y and -320 bps q-o-q), broadly in line with our expectations.

Mahindra & Mahindra and Mahindra Vehicle Manufacturers reported Q4FY20 Ebidta of Rs 1,230 crore (-34% y-o-y), 19% ahead our estimate, led by cost-cutting initiatives and RM benefits. We expect the near term to remain challenging for the auto business, given Covid-19 uncertainties; however, we expect tractor demand to recover as rural economy remains strong on the back of record rabi output, higher government spending and expectations of a normal monsoon. Also, the focus on tightening capital allocation norms could lead to re-rating. Maintain ‘buy’, revise SoTP-based FV to Rs 640 (Rs 625 earlier).

Net revenues came in at Rs 9,000 crore (-35% y-o-y), 9% above our expectations due to better-than-expected ASPs in both tractor and automotive business. Automotive division revenues came in at Rs 5,510 crore (-46% y-o-y).

Automotive ASPs increased 6% q-o-q mostly due to a richer product mix. In terms of segments, automotive Ebit margin came in at 4.1% (-470 bps y-o-y and -320 bps q-o-q), broadly in line with our expectations. Tractor Ebit margins came in at 17.6% (+140 bps y-o-y and -180 bps q-o-q), 160 bps better than our expectations due to RM benefits and cost-cutting initiatives. Ebitda margin came in at 13.6% (+10 bps y-o-y and -120 bps q-o-q), which was 110 bps above our expectations led by RM benefits and lower-than-expected staff costs. Net loss came in at Rs 3,260 crore due to Rs 3,580 crore of extraordinary loss on account of impairment of certain assets and investments. In FY20, consolidated revenues fell 9% y-o-y due to a steep drop in volumes in both automotive and tractor segments. The company reported a 97% y-o-y fall in consolidated net profit to Rs 130 crore on account of Rs 2,260-crore losses in Ssangyong, Rs 2,060-crore losses in other international subsidiaries and Rs 650-crore loss related to goodwill impairment, offset by Rs 5,100-crore profits from domestic auto & farm business and investments.

We expect the domestic tractor segment to lead the recovery once supply chain disruptions get resolved, driven by record rabi output, improvement in prospects of kharif output due to adequate water reservoir levels and expectations of a normal monsoon, and increase in MSPs of rabi and kharif crops, which augurs well for farm income.