M&M+MVML reported Q3FY22 Ebitda of Rs 18.1 bn (-24% y-o-y; +9% q-o-q), in line with our estimates, as RM headwinds were offset by cost-control measures. With successful launches in the UV segment, we expect strong recovery in auto segment volumes once the chip shortage situation resolves. Also, the company has been successful in turning around international farm and auto subsidiaries in challenging times, which is impressive. Maintain Buy on cheap valuations.
Q3FY22 standalone Ebitda in line
Net revenues came in at Rs 152.4 bn (+8% y-o-y; +15% q-o-q), in line with our estimates. Net revenues increased by 15% q-o-q led by (i) 12% q-o-q increase in volumes and (ii) 2% q-o-q increase in net realisations. Automotive division revenues came in at Rs 95.5 bn, increase of 21% q-o-q led by (i) 19% q-o-q increase in volumes and (ii) 1% q-o-q increase in ASPs due to prices hikes taken in Q3FY22. Tractor division revenues increased by 6% q-o-q led by (i) 5% q-o-q increase in volumes and (2) 2% q-o-q increase in ASPs due to price hikes taken in Q3FY22.
Automotive Ebit margin came in at 3.7% (+100 bps q-o-q), 30 bps below our estimates due to higher depreciation expense. Tractor Ebit margin came in at 17.3% (-140 bps q-o-q), 170 bps below our estimates due to sharp increase in steel prices, partly offset by cost-control measures. Ebitda margin came in at 11.9% (-60 bps q-o-q), 20 bps above our estimates. Adjusted PAT came in at Rs 13.5 bn, 2% below our estimates as lower-than-expected other income and higher-than-expected depreciation expense were offset by lower tax rates.
Consolidated revenues increased by 10% q-o-q to Rs 236 bn in Q3FY22. However, consolidated Ebit declined by 12% q-o-q due to 8% q-o-q decline in profitability of the farm equipment business due to RM headwinds and finance subsidiary. The company booked an exceptional gain of Rs 2.1 bn due to gain on sale of certain non-current assets by a subsidiary.
Fine-tune our FY2023-24e standalone EPS estimates; maintain BUY
We have fine-tuned our FY2023-24e standalone EPS. We have increased our FY2022e EPS estimates by 3% on higher other income assumptions. We expect swift recovery in automotive segment volumes once the chip shortage situation normalises given strong order backlog. However, we expect gradual recovery in tractor segment volumes given slowdown in the rural economy. Losses in international farm and auto subsidiaries have reduced despite a challenging external environment, which is encouraging. Maintain Buy on attractive valuations; SoTP-based FV unchanged at Rs 1,180. Adjusted for its stake in listed subsidiaries, M&M’s core business is trading at 8X FY2024e standalone EPS.