Buy Mahindra and Mahindra; target of Rs 728: Prabhudas Lilladher

Prabhudas Lilladher's research report on Mahindra and Mahindra

M&M’s 2QFY21 results exceeded our expectations with record EBITDA margins delivery by M&M+MVML’s at 17.8% (+370bp YoY, PLe ~14%). The beat was led by strong performance in FES. EBIT margins for FES was recorded at 24.4% (+5% YoY) led by operating leverage and cost controls. In 2QFY21, with focus on prudent capital allocation, M&M exited Gipps Aerospace business (Aircraft manufacturing division). Also it was able to turn around key global FES subs to EBIT positive (2Q contribution postive at Rs30m v/s loss of Rs560m YoY). We are positive on MM as 1) better rural sentiments should help drive FES and auto segments over FY21-23 and 2) continued focus on exiting non core/loss making business bode well for re-rating. We increase FY21/22/23 EPS by 16%/4%/1% and built in EBITDA/PAT CAGR of 12.6%/19% over FY21- 23E.

Outlook

We maintain BUY with revised SoTP based price target of Rs728 (v/s Rs703). The revision in TP is primarily led by increase in subs value to Rs180 (v/s Rs152 earlier, unchaged at 40% hold-co).

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