Mahindra & Mahindra surges 7% in two days post Q2 results

Shares of Mahindra & Mahindra (M&M) were up 3 per cent at Rs 919.80 on the BSE in Wednesday’s intra-day trade, surging 7 per cent in past two trading days after the company reported an over eight-fold increase in its standalone profit after tax (PAT) at Rs 1,432 crore for the second quarter ended September 30, 2021 (Q2FY22), on the back of robust sales. It had posted a standalone PAT of Rs 162 crore in Q2FY21.

The company’s revenue for the second quarter rose by 15 per cent to Rs 13,305 crore as against Rs 11,590 crore in the year-ago period. M&M reported the surge in second-quarter profit aided by strong export volumes, while mitigating some impact from the severe global semiconductor shortage that continues to plague the Indian automaker.

Earnings before interest, tax, depreciation and amortization (ebitda) profit, however, declined 19 per cent year on year at Rs 1,660 crore, while margins contracted 527 basis point to 12.5 per cent over the previous year quarter, due to higher operational costs.

“Commodity prices have impacted margins in both the Auto and Farm business, but focus on cost management and optimization has helped mitigate some of the impact,” the management said. With better availability of semi-conductors, the management hopes to maintain the volume growth momentum Q3 onwards. The management said the is poised well to deliver very strong growth and returns through an exciting new product portfolio.

M&M’s Q2FY22 performance was driven by better mix in the Auto business, cost-saving initiatives, and higher other income. Growth in Tractors is slowing, particularly on a high base of FY21. However, the Auto segment is expected to see strong momentum in both SUVs (led by new products and the easing of supply issues) and LCVs (cyclical recovery), Motilal Oswal Securities said in results update.

“We expect the Auto business to take over the growth mantle from Tractor, although deterioration in the mix would restrict EBITDA/EPS CAGR to 17 per cent/23 per cent over FY21-23E. M&M's valuations are still at a substantial discount to its five-year average, reflecting a weaker Tractor cycle,” the brokerage firm said. It maintains ‘buy’ rating on the stock with target price of Rs 1,150 per share.