Mahindra & Mahindra Q4 preview: Volume decline, lower ASPs to dent earnings

Mahindra & Mahindra is likely to report an over 50 per cent dip in bottom-line in its March quarter results (Q4FY20), which are scheduled to be released on Friday. Analysts attribute the drop to decline in the company's volumes during the quarter and lower average selling prices (ASPs). 

According to the monthly sales update provided by the company, Mahindra & Mahindra sold 15.1 lakh units during the quarter, a 36 per cent fall on a YoY basis, led by 47 per cent YoY decline in auto volumes, and partially offset by around 3 per cent decline in tractor volumes. In comparison, the company had sold 23.5 lakh units in Q4FY19. Moreover, it had reported Rs 13,807.9 crore as revenue and net profit of Rs 1,041.2 crore for the quarter.

According to Nomura, the medium and heavy commercial vehicle (MHCV) segment was the most impacted in Q4FY20 in terms of sales, followed by two-wheelers and passenger vehicles (PVs). "We believe that the recovery will be gradual and will be impacted by cautious consumer spending, wage cuts and finance availability. Hence, despite a low base, we expect PV/2W volume growth of -10 per cent YoY and MHCV -20 per cent YoY in FY21. However, our volume estimates can also have more downside risks if the economy takes longer to recover," the brokerage said in a note.

At the bourses, Mahindra & Mahindra cracked 46.8 per cent in Q4FY20 as compared to Nifty's 29.4 per cent fall in the same period, ACE Equity data show. Meanwhile, the Nifty Auto index declined 42.3 per cent.

Here's what leading brokerages expect from M&M's Q4FY20 numbers

Axis Capital

According to the analysts at Axis Capital, M&M's auto volumes were impacted during the quarter by supply chain disruptions due to Covid-19 and the subsequent 7-10 days lockdown in March, and bunching up of dispatches in the last few days of the month. Fire at Varroc's plant also affected sales. They expect this drop in volume and around 3 per cent decline in ASPs to pull down M&M's Q4FY20 revenue by 37 per cent YoY to Rs 8,660 crore and profit by 55 per cent YoY to Rs 480 crore. The decline in ASPs is attributed mainly to lower ASPs in Auto on the back of higher discounts to reduce BS4 inventory).

At the operating level, the analysts see M&M's earnings before interest, tax, depreciation, and ammortisation (Ebitda) margin declining 150 basis points (bps) YoY to 12 per cent due to negative operating leverage, which, they say, will more than offset benefits of lower commodity costs and favorable mix (higher share of tractors). "On a sequential basis, we expect 40 bps improvement in gross margin. In terms of segments, expect 4 per cent EBIT margin in auto segment (down 480 bps YoY) and 15 per cent EBIT margin in tractor segment (down 120 bps YoY)," the brokerage said.

Kotak Securities

The brokerage expects M&M's revenues to decline by 40 per cent YoY to Rs 8,268.7 crore, led by 36 per cent YoY fall in volumes and 4 per cent YoY dip in ASPs in Q4FY20. Profit is seen falling 55.7 per cent on a YoY basis to Rs 428.9 crore. "We estimate Ebitda to decline by 45 per cent YoY to Rs 1,031.9 crore from Q4FY19's Rs 1,867.8 crore due to negative operating leverage in the quarter". Ebitda margin may come in at 12.5 per cent for the quarter, down 105 basis points (bps) from 13.5 per cent reported in the corresponding quarter of previous fiscal, the brokerage said.

Nomura

Analysts at the brokerage expect Mahindra & Mahindra's revenues to slip 38 per cent YoY to Rs 8,616.4 crore while profit for the quarter is seen at around Rs 357.5 crore, down 66 per cent on a YoY basis. "Ebitda margins are seen declining around 410bps on a sequential basis to 10.7 per cent on weak operating leverage and higher commodity costs and Ebitda has been pegged at Rs 920.3 crore, down 51 per cent YoY from Rs 1,867.8 crore in the corresponding quarter last year.

The brokerage has maintained 'BUY' on the stock.as it continues to remain positive on stocks with higher rural exposure (as the recovery can be faster) and where valuations are cheap.

Edelweiss

The brokerage expects around 39 per cent YoY fall in M&M’s revenues to Rs 8,410.8 crore, led by a sharp volume decline across all its vehicle categories. Analysts at Edelweiss are building a 59.3 per cent YoY fall in PAT to Rs 423.5 crore. "Consequently, Ebitda margin seen at 12.1 per cent, expected to decline around 1.4 per cent YoY and around 250bps sequentially, offset by a better mix (higher share of tractors and stable 3W contribution .Edelweiss sees M&M's Q4FY20 Ebitda at Rs 1,018.3 crore, down 45.5 per cent from 1,867.8 crore reported in Q4FY19.