>MAHINDRA & MAHINDRA (IDFC SSKI)

HIGHLIGHTS OF Q4FY09 RESULTS

• Mahindra & Mahindra (M&M) Q4FY09 results have been better than our estimates primarily on account of the inclusion of Punjab Tractors performance which has been amalgamated with the company from Q4FY09. Hence, the results are not comparable on a yoy basis.

• Net sales grew by 15.5%yoy to Rs36.4bn (we saw Rs33.8bn). While automotive revenues grew by 6%yoy to Rs21.9bn, the farm equipment segment (FES) revenues (including Punjab Tractors and hence strictly not comparable yoy) grew by 48%yoy to Rs14.5bn. The company was able to grow its UV volumes by 5%yoy during the quarter despite a challenging macro-environment primarily due to the strong demand for the newly launched Xylo as well as a sustained demand for the Bolero during the quarter.

• EBIDTA Margins at 11.1% were marginally higher yoy (10.9% in Q4FY08) and substantially higher qoq (8.8% in Q3FY09). Operating margins have been adjusted for the octroi benefit of Rs179.5mn received and the forex gain of Rs1.4bn (pre-tax) during the quarter. On a segmental basis, auto segment margins during the quarter were at 8% (against 10% in Q4FY08 and significantly better than the loss of Rs104mn in Q3FY09) while the FES segment margins were at 11% (against 14.5% in Q4FY08 and 10.7% in Q3FY09).

• Profit on sale of shares from Swaraj Mazda of Rs383.6mn included in other income has been treated below the line as an exceptional one time gain. Adjusted for these extra-ordinary items, PAT for the quarter was at Rs2.8bn.

• M&M’s FY09 consolidated operating income grew by 12%yoy to Rs268bn on the back of 14.4%yoy growth for the standalone company as well as strong performance by its key subsidiaries including Tech Mahindra (19%yoy growth in revenues) and Mahindra Finance (13%yoy growth in revenues). Margins for the full year were at 13.7% while PAT for the year declined 19%yoy to Rs14.7bn. The full year profits for the group were severely impacted by the downturn in the automotive and auto-component sector across the world.

Introducing FY11 estimates: We have assumed 10% UV volume growth driven by new model launches and a recovery in tractor volumes (9%yoy growth) for M&M in FY11E. On a consolidated basis, we expect M&M to post 8% CAGR in earnings over FY09-11E, translating to an EPS of Rs60.3 in FY11E.

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