Mahindra and Mahindra Ltd Time to get on board…

With 3 healthy back-to-back cropping seasons and good monsoon, which has Vishal Srivastav
Research Analyst
resulted in strong rural sentiment, we reiterate our stance that the tractor Vishal.srivastav@edelweissfin.com
upcycle may last for a couple of years. Being the market leader in the tractor
segment, Mahindra & Mahindra (M&M) the key beneficiary of this surge. The
re-rating catalyst will be new management’s ability towards achieving key
milestones it has laid down viz. 1) Gradual improvement in the financial health
from FY22; and 2) Boost cash flow and Return on Equity (RoE). Hence stock is a CMP: INR 614
Tactical BUY with a target price of INR 758 per share, based on SoTP valuation. Rating: Tactical BUY

FES business to benefit from a revival in rural India Target price: INR 758
Our report, titled: ‘Automobile Industry - Coronavirus deals a decade blow’, lays Upside: 23%
our case of the rural economy leading the economic revival. We continued to
maintain our positive stance on the tractor industry is poised for multi-year
upcycle (refer our report on Escorts dated July 6, titled: ‘Escorts – Journey from
turnaround to excellence’). Back-to-back bountiful harvest seasons, increased
government procurement, healthy monsoon are the key drivers. With over 45%
market share, M&M is best placed to reap benefits of this surge.
Bloomberg: MM:IN
Automotive business to gradually recover from H2FY21
The light commercial vehicle (LCV) segment will drive growth for the automotive 52-week range (INR): 245/667

business in the short term. Being market leader, M&M will significantly benefit Share in issue (crore): 119
from the gradual revival in LCV demand. Course correction by the management in
M-cap (INR crore): 74,853
the utility vehicle (UV) segment off late and renewed focus towards strengthening
its strong hold in the conventional mid-size SUV segment through new launches Promoter holding (%) 19.58

may help it arrest the sharp market share loss.

Focus on improving RoE across businesses – A key re-rating driver
The new management’s focus on improving cash flows and RoE across all
businesses and subsidiaries is encouraging. Willingness to exit business that do
not fall in its strategic growth path or those unable to achieve 18% RoE is a clear
change of stance. Turning around loss-making subsidiaries and scaling up its
market share in the UV business will result in a significant valuation re-rating.
Outlook and valuation
We see a valuation re-rating catalyst will be new management’s ability towards
achieving key milestones viz. 1) healthy revival in the standalone operations driven
by FES business; 2) focus on gradually improving the financial health of
subsidiaries from FY22; and 3) emphasis on improving cash flow and RoE across
all businesses. The stock is a Tactical BUY with a target price of INR 758 per share.
Year to March FY18 FY19 FY20 FY21E FY22E
Revenue (INR crore) 47,577 52,848 44,865 40,773 47,332
Revenue growth (%) 13.5 11.0 -15.0 -9.0 16.0
EBITDA (INR crore) 7,043 7,530 6,350 5,178 6,484
Adjusted PAT (INR crore) 4,320 5,418 3,889 3,025 4,031
P/E (x) 16.4 13.1 18.2 23.4 17.6 25.8 40.9
Price-to-book value (x) 2.3 2.0 2.0 1.9 1.7
EV-to-EBITDA (x) 9.7 9.0 10.9 13.0 10.0
RoACE (%) 19.9 20.0 14.6 10.6 13.1
Date: 6th November, 2020
RoAE (%) 15.1 16.5 11.1 8.4 10.3

Edelweiss Professional Investor Research 1

Mahindra and Mahindra
Investment hypothesis

I. Rural India – The bright spot and key to economic growth

In our April 28 research note, titled: ‘Automobile Industry - Coronavirus deals a decade blow’, we
presented our case of the rural economy leading the economic revival. Back-to-back bountiful harvest
seasons, increased government procurement, healthy water storage levels and expectations of a
normal monsoon were the key drivers buttressing our expectation.

Six months from the release of our report, we see strong rural demand momentum. Despite increasing
COVID-19, infections off late, sentiment remains buoyant, influenced by high income visibility,
because of record kharif sowing this season and plentiful monsoon. Strong revival in tractor sales, 40%
YoY growth since June, after easing in lockdown restrictions is evidence of healthy rural sentiment.
We continue to maintain our positive stance on the tractor industry. In our initiation coverage on
Escorts Ltd on July 6, titled: ‘Escorts – Journey from turnaround to excellence’, we estimated tractor
demand to clock 2-4% growth and industry is poised for a next upcycle that would be for couple of
years. We continue to maintain our view on the tractor cycle, however our channel checks indicates
buoyancy in rural sentiments may push domestic tractor sales growth towards double digit levels for
FY21.

Exhibit 1: Tractor industry to clock double digit growth in FY21 significantly surpassing our earlier expectation

20%
42% 18%

12%
12% 12%
23% 25% 7%
13% 7%
12% 5%
4% 6%
-6%
-10% -12%
-14% -14%
FY20 FY21E FY22E FY23E
-5%
Q4FY20
Q1FY20

Q2FY20

Q3FY20

Q1FY21

Q2FY21E

Q3FY21E

Q4FY21E

-10%

Pessimistic Optimistic Realistic Pessimistic Optimistic Realistic

Source: TMA, Industry and Edelweiss Professional Investor Research

M&M: FES business will continue to provide strong support during challenging times
Business-wise With over 45% market share in the tractor industry, Mahindra & Mahindra (M&M) will be one on the
share in revenue major beneficiaries of the surge in tractor demand. Its farm equipment business (FES) contributes
and profits around one-third of standalone topline and over two-third to Profit Before Interest and Tax (PBIT).

34%
69%
Exhibit 2: FES contributes one-third to topline and more than two-third to profits
71% 69%
62%
30% 59% 61%
52% 49%
Revenue PBIT share
share
34% 31% 32% 34%
31% 31%
Automotive FES Others

FY15 FY16 FY17 FY18 FY19 FY20

Topline share PBT share
Source: Company reports and Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 2

Mahindra and Mahindra
Investment hypothesis

Despite increase in competition intensity in the last 6-7 years, the management has been able to
maintain its market share of ~40-42% on the back of frequent model launches. The company plans to
launch a new light weight tractor platform ‘K2’ in collaboration with Mitsubishi, which will help it
strengthen its domestic market share going forward and also scale up exports.

Exhibit 3: FES business to reap significant benefits from the surge in tractor demand
22,000 16% 20%
15%
20,000 11% 15%

18,000 10%
5%
16,000 5%

19,753
17,104
16,562
14,000 0%
15,762

15,402
12,000 -5%
-7%
10,000 -10%
FY18 FY19 FY20 FY21E FY22E
FES revenues (INR cr) Growth (RHS)
Source: Edelweiss Professional Investor Research

UV segment: Last decade’s concerns still persist

Dropping market share in the utility-vehicle (UV) segment has been a key concern for M&M’s
automotive business. Although it has been at the forefront of new launches and has introduced
models in high growing lower engine capacity UV market, it has not been able to rein in the market
share slide. The company has been unable to lure customers as newer entrants like Maruti Suzuki,
Hyundai Motor Co. and Kia Motors Corp. continued to eat into its market share.

Exhibit 4: M&M’s market share dropped by over 50% in the last decade…

11% 10% 13% 15% 15%

20% 18% 19%
13% 27% 31%
13% 8% 2% 8% 6%
3% 6%
12% 7%
17% 5% 12% 11% 11%
21% 19% 4%
14% 11% 13% 12% 13%
15% 28%

48% 29% 25% 25%

42% 38% 19%
54% 56% 37%

26% 28% 28% 25%

14% 12% 12% 16%
2% 2%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Maruti Suzuki M&M Hyundai+Kia Toyota Kirloskar Tata Motors Others
Source: Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 3

Mahindra and Mahindra
Investment hypothesis

Exhibit 5: … as it couldn’t make significant inroads in the rapidly growing small SUV market despite
a slew of model launches
Segment FY11 FY12 FY15 FY16 FY17 FY18 FY19 FY20
Large SUV Scorpio
Large SUV Bolero
Large SUV Xylo
Small SUV Quanto
Large SUV XUV500
Small SUV KUV100
Small SUV NovoSport
Small SUV TUV300
Large SUV Thar
Large SUV Alturas
Large SUV Marazzo
Small SUV XUV300

Source: Edelweiss Professional Investor Research

Exhibit 6: Market share loss in smaller SUVs was even Exhibit 7: …as the sub-segment saw significant growth in
sharper… overall UV market in the last decade

77%

22%
74%

29%

29%
33%
37%
42%
45%
51%
66%
68%

45%

78%
36%

71%

71%
67%
32%
63%

30%
58%
55%
49%

25%
21%
34%
32%

17%
14%

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Large SUV % in overall UV market Small SUV % in overall UV market

Source: SIAM and Edelweiss Professional Investor Research

FY21 will continue to remain a challenging year for M&M…

A stronger revival in this segment is encouraging for M&M’s UV business. However, a sharp increase
in competition from other leading players like Maruti and Hyundai through their new launches of
Vitara Brezza, S-Cross, Creta, and Venue, coupled with successful launches of Seltos and Sonet from
new entrant Kia, will only make the job tougher for M&M.

Although M&M has the XUV300, which is a popular model, the company dearly requires the success
of recently launched Thar (upgrade), near term expected launches of W601 (i.e. Scorpio upgrade) and
Bolero (upgrade) to turn the tide in its favour.

Edelweiss Professional Investor Research 4

Mahindra and Mahindra
Investment hypothesis

Exhibit 8: Recovery in the UV segment has been faster… Exhibit 9: …with growth continuing to outpace that of the
overall PV industry
25%

12% 15%
28% 9% 18% 15%
7% 5%
12% -5% 10%
-5% -3%
-15%
5%
2%
-10% -7%
-72%
-11%
Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21

Q2FY21

Q3FY21E

Q4FY21E
-17%
FY20 FY21E FY22E FY23E

Pessimistic Optimistic Realistic

Pessimistic Optimistic Realistic
Source: SIAM and Edelweiss Professional Investor Research

…however, focus on its conventional segment may help arrest near term market share loss
R&D as a % to The management’s focus on strengthening its position in the mid-sports utility vehicle (SUV), i.e.
revenue
6.6%
conventional sub-segment, with the launch of Thar (upgrade); expected launch of new models -- W601
5.0% 5.0%
or Scorpio upgrade (through the M&M and Ford joint-venture) and Z101 in Q1 and Q3FY22,
4.4% respectively; and the launch of the Bolero upgrade over the next 3-4 quarters.
3.8%
4.2% Renewed focus on its stronghold mid-SUV sub-segment is the right strategy because of its strong
acceptance among its conventional SUV customer segment.
FY15

FY16

FY17

FY18

FY19

FY20

Exhibit 10: New launch pipeline comprises more large SUVs indicating a change in management’s
stance
Segment FY21E FY22E FY23E
Large SUV Thar upgrade
Large SUV W601
Large SUV Z101
Large SUV Bolero upgrade
Small SUV S 204

Source: Edelweiss Professional Investor Research

Ford JV can help the UV business to scale up to the next level l

Acquisition of 51% stake in the JV with Ford, may help M&M scale up the business to the next level,
which the management has always strived off. In addition to gaining use of Ford’s 4.4 lakh unit
manufacturing capacity in India, which will help it reap the benefits of economies of scale, M&M will
also get access to any future model technology by Ford.

The benefits from this JV will start accruing from next year, with the launch of model W601. In FY23,
a new model (S 204) will be launched by this JV in the compact SUV space. There are also plans of
developing a new electric vehicle (EV) platform under this JV.

Edelweiss Professional Investor Research 5

Mahindra and Mahindra
Investment hypothesis

M&M also plans to use this facility as a manufacturing base for exporting vehicles to Ford’s overseas
markets. The company will initially invest INR 650 crore in this entity, which will be gradually raised to
INR 1,400 crore.

LCV demand to drive overall CV revival in FY21

Exhibit 11: Revival influenced by pick-up in consumption Exhibit 12: LCVs to witness healthy growth momentum in the
levels short to medium term

35%
20% 40% 35%
25%
10%
-2% 5%
25% 22%
-6% -6% -8%
-25% 12%
-43% -12%
-5%
-21% -21%
-78%
-30%
Q4FY20
Q1FY20

Q2FY20

Q3FY20

Q1FY21

Q2FY21

Q3FY21E

Q4FY21E

FY21E

FY22E

FY23E
FY20
Pessimistic Optimistic Realistic Pessimistic Optimistic Realistic
Source: SIAM, Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 6

Mahindra and Mahindra
Investment hypothesis
Mahindra and M&M’s strong hold over the LCV segment may see it benefit from a pick-up in demand
Mahindra Ltd Frequent model launches, based on different applications, have led M&M to surpass Tata Motors as
market leader in FY20. We expect demand for light commercial vehicles (LCVs) to recover much faster
as compared to other segments in the commercial vehicle (CV) industry, with increased traction from
the rapidly growing e-commerce sector.

The recent pick-up seen in LCV sales in the last few months indicates encouraging signs of a swift
recovery in demand.

Exhibit 13: Growth in LCV sales for M&M

13% 9% 10% 11% 12% 12% 10% 8% 8%

15%
7% 2% 4% 4%
2% 6% 7% 7% 8% 8% 9% 9%

48% 43% 38% 38% 40% 41% 39%

56% 58% 57%

39% 42% 42% 40% 38% 39%

35%
29% 28% 27%

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
M&M Tata Motors Ashok Leyland Maruti Others
Source: Edelweiss Professional Investor Research

Although competition has intensified with recent launches by all major competitors (like Bada Dost
from Ashok Leyland and Intra V20 from Tata Motors), M&M’s strong offerings will help it keep pace
with competition and maintain its stronghold over this segment.

Exhibit 14: A pick-up in sales will lead to revival in the automotive business from FY22

40,000 50%
37%
35,000
30%

30,000 10%
0% 10%
25,000
35,328
32,081

-20% -10%
28,069

20,000 -28%
28,409

-30%
20,527

15,000

10,000 -50%
FY18 FY19 FY20 FY21E FY22E
Automotive revenues (INR crore) Growth (RHS)
Source: Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 7

Mahindra and Mahindra
Investment hypothesis
Mahindra and Management’s focus on reducing subsidiary losses and rise in RoE will boost investor confidence
Mahindra Ltd The board’s recent decision to reject the INR 3,000 crore restructuring plan for SsangYong Motor
Company in April and the new management’s willingness to cede majority or even its entire stake in
the latter indicates a clear change in its approach. The 3 key focus areas laid down to categorise all
subsidiaries are detailed below:

a. Subsidiaries should have clear path towards 18% Return on Equity (RoE)
b. Unclear path to profitability but with strategic benefits like Sampo Rosenlew – M&M will continue
to invest
c. Unclear path to profitability with no strategic benefits – M&M will exit

This shift in focus towards improving RoE to 18% in the medium term by scaling up profitability across
businesses and laying parameters for evaluating all potential investments will be key towards
improving investor confidence and result in a re-rating in valuations.

Exhibit 15: Tough market scenario and heavy subsidiary losses significantly deteriorated M&M’s
RoE profile
18%

15% 15% 15% 15%

6%
4%
3% 3% 3% 3%

-1%

FY15 FY16 FY17 FY18 FY19 FY20

Standalone RoE Consol RoE

Source: Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 8

 Mahindra and Mahindra
Investment hypothesis

Exhibit 16: Subsidiaries like SsangYong Motor Company, Mahindra USA, Mahindra Aerospace and Mahindra Tractor Assembly
has been a consistent drag on M&M’s performance

Investments (INR cr) Sector % Holdings FY19 FY20

Listed subsidiaries, JVs, associated companies
Ssangyong Motor Co. Automotive 72% (283) (2,268)
Mahindra Lifespace Dev. Real Estate 52% 30 (116)
Mahindra Holidays & Resorts India Leisure 67% 43 (73)
EPC Industrie Limited Agriculture 55% 6 13
Swaraj Engines Limited Agriculture 33% 28 25
Mahindra CIE Automotive Agriculture 17% 66 41
Mahindra Logistics Limited Logistics 59% 80 56
M&M Financial Services NBFC 51% 801 466
Tech Mahindra Limited IT services 26% 1,245 1,165
Gems recognised by the management
Mahindra Electric Automotive 100% (53) (55)
Mahindra First Choice Automotive 100% (50) (38)
Mahindra Agri Solutions Agriculture 99% (63) (19)
Meru Mobility 86% - (18)
Classic Legends Automotive 60% (11) (4)
Bristlecone IT services 75% 31 26
Mahindra Susten Pvt Ltd Renewable 100% 63 42
Mahindra Rural Housing Finance NBFC 51% 128 76
Loss making unlisted subsidiaries
Mahindra USA Inc Agriculture 100% (549) (507)
Mahindra Aerospace Aerospace 90% (161) (287)
Mahindra Vehicle sales Automotive 100% (127) (248)
Peugot Motorcycles SAS Automotive 100% (282) (256)
Mahindra Aerospace Aus Aerospace 90% (81) (241)
Mahindra Tractor Assembly (incl. Genze) Automotive 100% (243) (222)
Automobili Pininfarina Automotive 100% (101) (130)
Source: Company reports and Edelweiss Professional Investor Research

Revival in the demand environment for its standalone operations and management’s focus on
turning around its loss-making businesses…
With a revival in demand across key businesses, we expect a gradual YoY increase in topline from
H2FY21 and a significant surge in FY22. Benefits of economies of scale and focus of the new
management on reducing cost and increasing profitability across businesses will lead to substantial
improvement in the profitability of standalone operations in the short to medium term.

Few key loss-making subsidiaries, which will cease to exist in FY21, are: 1) Mahindra Tractor Assembly,
which reported a loss of INR 222 crore in FY20; and 2) Mahindra Aerospace Australia, which incurred
a loss of ~INR 240 crore in FY20.

Few loss-making subsidiaries which we believe are next in line are: 1) SsangYong Motor, which
reported a loss of INR 2,268 crore in FY20; 2) Peugeot Motocycles, which posted a loss of INR 256
crore; and 3) Mahindra Aerospace, which incurred a loss of INR 287 crore. These loss-making
subsidiaries contribute over 85% of overall subsidiary losses.

FY21 will be challenging for subsidiaries with weak financial health. The management’s focused
approach towards turning around subsidiary operations and sale of significant loss-making
subsidiaries will start adding meaningful benefits to the bottomline as well as cash flow from FY22
onwards.

Edelweiss Professional Investor Research 9

 Mahindra and Mahindra
Investment hypothesis

…will result in a valuation re-rating from current levels l

We believe parameters like; 1) A healthy revival is expected in the standalone operations of major
businesses from H2FY21; 2) Renewed focus of the management on gradually improving the financial
health of subsidiaries from FY22; and 3) Emphasis on improving cash flow and achieving 18% RoE
across all businesses and investments, will lead to a valuation re-rating from current levels. Hence we
initiate Tactical BUY on M&M with a target price of INR 758 per share.

Exhibit 17: SoTP valuation methodology

M&M % in M Value per share
Listed subsidiaries M Cap (INR cr) % Holding CMP (INR)
Cap (INR cr) (INR)
Mahindra Lifespace Dev. 1,196 51.1% 611 267 5
Mahindra Holidays & Resorts India 2,298 67.5% 1,551 175 13
Swaraj Engines Limited 1,709 33.2% 567 1413 5
Mahindra CIE Automotive 5,218 17.3% 903 143 8
Mahindra Logistics Limited 2,508 58.8% 1,475 379 12
M&M Financial Services 16,006 51.2% 8,195 130 69
Tech Mahindra Limited 79,501 26.7% 21,227 839 178
Total value 289
Investment valued at 50% discount (A) 203
EPS FY22E 35
Estimated FES EPS FY22 23
Estimated Automotive EPS FY22 11
Target P/E
FES business 18
Automotive business 12
Core business value (B) 555
Target Price (A+B) 758
Source: Company reports and Edelweiss Professional Investor Research

Edelweiss Professional Investor Research 10

Mahindra and Mahindra
Investment hypothesis

Exhibit 18: Core P/E valuation

30
26
22
19
17 20
17

FY15 FY16 FY17 FY18 FY19 FY20

P/E 2 year froward Average P/E for last 10 years
Source: Edelweiss Professional Investor Research

Exhibit 19: Key assumptions for our estimates

Key assumptions of our estimates FY19 FY20 FY21E FY22E
Domestic Tractor industry growth 11% (11%) 12% 12%
Domestic UV industry growth 2% (2%) (11%) 18%
Domestic LCV industry growth 17% (21%) (21%) 25%
Domestic MHCV industry growth 13% (42%) (30%) 31%
Growth in M&M FES business 5% (7%) 14% 15%
Growth in M&M Automotive business 10% (20%) (21%) 34%
Capex (INR cr) 3,640 2,148 1,500 3,000
Source: Edelweiss Professional Investor Research

New management team

The new management team led by Dr Anish Shah, who currently is Deputy Managing Director and
Group Chief Financial Officer (CFO), will be taking over as MD and CEO from Dr Pawan Goenka from
April 1, 2021. Before joining M&M, Shah was President and CEO at GE Capital India, where he led the
turnaround of the SBI Card venture.

Rajesh Jejurikar has been appointed as Whole-time Director and Executive Director of the FES business
from April 1. He was part of the development team of Scorpio and has headed businesses like FES and
Mahindra Two Wheeler in his earlier assignments with M&M.

Edelweiss Professional Investor Research 11

Mahindra and Mahindra
Financials

INR Cr
Income statement FY18 FY19 FY20 FY21E FY22E
Income from operations 47,577 52,848 44,865 40,773 47,332
Materials costs 31,628 35,997 29,866 27,237 31,239
Manufacturing expenses 5,742 6,037 5,424 5,096 6,058
Employee costs 3,162 3,283 3,223 3,261 3,549
Total operating expenses excluding depreciation and amortisation 40,533 45,318 38,514 35,595 40,848
EBITDA 7,043 7,530 6,350 5,178 6,484
Depreciation & Amortization 1,625 2,003 2,363 2,243 2,337
EBIT 5,418 5,527 3,987 2,934 4,147
Interest expenses 188 146 124 150 180
Other income 951.71 1,630.26 1,539.13 1,223.21 1,372.65
Profit before tax 6,181 7,010 5,402 4,007 5,340
Provision for tax 1,991 1,586 1,851 981 1,308
Exceptionals (before PBT) 433 -22 -2,811 0 0
Reported PAT 4,623 5,401 739 3,025 4,031
Less: Exceptional Items (Net of Tax) 303 -17 -802 0 0
Adjusted PAT 4,320 5,418 3,889 3,025 4,031
Basic shares outstanding (mn) 113 113 113 113 113
Adjusted basic EPS (INR) 37.9 47.5 34.1 26.5 35.3
Diluted equity shares (mn) 113 113 113 113 113
Adjusted diluted EPS (INR) 37.9 47.5 34.1 26.5 35.3
CEPS (INR) 52.1 65.1 54.8 46.2 55.8
Dividend per share (INR) 7.8 8.8 7.4 6.6 8.1
Dividend payout (%) 22.7 21.9 136.7 29.8 27.3

Common size metrics FY18 FY19 FY20 FY21E FY22E

Materials costs 66.4 68.1 66.5 66.8 66
Employee expenses 6.6 6.2 7.1 8 7.5
S G & A expenses 12 11.4 12 12.5 12.8
Operating expenses 85.1 85.7 85.8 87.3 86.3
Depreciation 3.4 3.7 5.2 5.5 4.9
Interest expenditure 0.3 0.2 0.2 0.3 0.3
EBITDA margins 14.8 14.2 14.1 12.7 13.7
Net profit margins 9 10.2 8.6 7.4 8.5

Growth ratios (%) FY18 FY19 FY20 FY21E FY22E

Revenues Growth 13.5 11 -15 -9 16
EBITDA Growth 24.5 6.9 -16 -18 25.2
PBT Growth 19.8 13.4 -23 -26 33.2
Net profit Growth 15.4 25.4 -28 -22 33.2
EPS Growth -40 25.4 -28 -22 33.2

Edelweiss Professional Investor Research 12

Mahindra and Mahindra
Financials

Balance sheet (INR Cr) FY18 FY19 FY20 FY21E FY22E

Equity capital 594 595 596 596 596
Reserves & surplus 29,892 34,397 34,032 36,505 39,955
Shareholders funds 30,487 34,993 34,629 37,101 40,552
Long term debt 2,545 2,231 2,039 2,039 2,039
Short term debt 668 448 1,113 1,113 1,113
Borrowings 3,214 2,680 3,153 3,153 3,153
Deferred Tax liability 455 789 1,506 1,506 1,506
Sources of funds 34,157 38,463 39,288 41,761 45,212
Gross block 19,648 23,829 23,496 25,496 27,496
Net block 9,682 11,853 10,394 10,098 9,622
Capital work in progress 3,324 2,643 6,514 6,067 7,206
Total fixed assets 13,006 14,496 16,909 16,165 16,828
Non current investments 15,462 17,383 15,343 16,843 17,643
Cash and equivalents 5,360 5,534 4,513 6,443 9,122
Inventories 3,327 4,763 4,040 4,000 4,644
Sundry debtors 3,098 3,811 2,901 3,050 3,541
Loans and advances 1,018 861 651 597 615
Other current assets 8,055 8,065 7,458 7,478 7,497
Total current assets (ex cash) 15,499 17,501 15,052 15,126 16,298
Trade payable 9,373 10,360 7,200 7,596 8,818
Others current liabilities 5,798 6,092 5,328 5,221 5,862
Total current liabilities & provisions 15,172 16,453 12,529 12,817 14,680
Net current assets (ex cash) 327 1,048 2,523 2,309 1,617
Uses of funds 34,157 38,463 39,288 41,761 45,212
Book value per share (INR) 267.4 307 303.8 325.5 355.7

Free cash flow FY18 FY19 FY20 FY21E FY22E

Net profit 4,623 5,401 739 3,025 4,031
Depreciation 1,625 2,003 2,363 2,243 2,337
Interest (Net of Tax) 131 113 35 113 135
Others -895 -1,404 2,282 -1,186 -1,328
Less: Changes in WC -1,320 721 1,474 -213 -691
Operating cash flow 6,805 5,391 3,945 4,410 5,867
Less: Capex 3,287 3,492 4,775 1,500 3,000
Free Cash Flow 3,518 1,899 -829 2,910 2,867

Edelweiss Professional Investor Research 13

Mahindra and Mahindra
Financials

Profitability and efficiency ratios FY18 FY19 FY20 FY21E FY22E

ROAE (%) 15.1 16.5 11.1 8.4 10.3
ROACE (%) 19.9 20.0 14.6 10.6 13.1
Inventory day 31.0 35.0 45.0 45.0 42.0
Debtors days 22.0 23.0 27.0 26.0 25.0
Payable days 99.0 100.0 107.0 99.0 95.0
Cash conversion cycle (days) -44.0 -41.0 -34.0 -27.0 -28.0
Current ratio 1.3 1.4 1.5 1.6 1.7
Gross Debt/EBITDA 0.4 0.3 0.4 0.6 0.4
Gross Debt/Equity 0.1 0.0 0.0 0.0 0.0
Adjusted debt/equity 0.1 0.0 0.0 0.0 0.0
Net Debt/Equity 0.0 0.0 0.0 0.0 0.0
Interest coverage 28.7 37.6 32.0 19.5 23.0

Operating ratios FY18 FY19 FY20 FY21E FY22E

Total asset turnover 1.4 1.4 1.1 1 1
Fixed asset turnover 5.0 4.9 4.0 3.9 4.8
Equity turnover 1.6 1.6 1.2 1.1 1.2

Du pont analysis FY18 FY19 FY20 FY21E FY22E

NP Margin % 9.0 10.2 8.6 7.4 8.5
Total Assets Turnover 1.4 1.4 1.1 1.0 1.0
Leverage multiplier 1.1 1.1 1.1 1.1 1.1
ROAE % 15.1 16.5 11.1 8.4 10.3

Valuation parameters FY18 FY19 FY20 FY21E FY22E

EPS (INR) diluted 37.9 47.5 34.1 26.5 35.3
Y-o-Y growth (%) -40.0 25.4 -28.0 -22.0 33.2
Cash EPS 52.1 65.1 54.8 46.2 55.8
Diluted PE (x) 16.4 13.1 18.2 23.4 17.6
Price/BV (x) 2.3 2.0 2.0 1.9 1.7
EV/Sales (x) 1.4 1.2 1.5 1.6 1.3
EV/EBITDA (x) 9.7 9.0 10.9 13.0 10.0

Edelweiss Professional Investor Research 14

 Edelweiss Broking Limited, 1st Floor, Tower 3, Wing B, Kohinoor City Mall, Kohinoor City, Kirol Road, Kurla(W)
Board: (91-22) 4272 2200

Vinay Khattar
VINAY
Digitally signed by VINAY KHATTAR
DN: c=IN, o=Personal, postalCode=400072,
st=MAHARASHTRA,
Head Research serialNumber=cd5737057831c416d2a5f7064

vinay.khattar@edelweissfin.com KHATTAR cb693183887e7ff342c50bd877e00c00e2e82

a1, cn=VINAY KHATTAR
Date: 2020.11.06 17:11:38 +05'30'

Rating Expected to

BUY appreciate more than 15% over a 12-month period

HOLD appreciate between 5-15% over a 12-month period

REDUCE return below 5% over a 12-month period

180
160
140
120
Indexed

100
80
60
40
20
0
Jan-15
Mar-15
May-15

Jan-16
Mar-16
May-16

Jan-17
Mar-17
May-17

Jan-18
Mar-18
May-18

Jan-19
Mar-19
May-19

Jan-20
Mar-20
May-20
Feb-15

Sep-15

Feb-16

Sep-16

Feb-17

Sep-17

Feb-18

Sep-18

Feb-19

Sep-19

Feb-20

Sep-20
Apr-15

Jul-15

Nov-15
Dec-15

Apr-16

Jul-16

Nov-16
Dec-16

Apr-17

Jul-17

Nov-17
Dec-17

Jul-18
Apr-18

Nov-18
Dec-18

Apr-19

Jul-19

Nov-19
Dec-19

Apr-20

Jul-20

Nov-20
Jun-15
Aug-15
Oct-15

Jun-16
Aug-16
Oct-16

Jun-17
Aug-17
Oct-17

Jun-18
Aug-18
Oct-18

Jun-19
Aug-19
Oct-19

Jun-20
Aug-20
Oct-20

M&M Sensex

Edelweiss Professional Investor Research 15

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Edelweiss Professional Investor Research 17