Key takeaways from the call hosted by Mahindra & Mahindra (M&M) to discuss budget implications of excise duty hike are: M&M will pass on the hike; 4% excise duty increase on Bolero, Xylo, Scorpio and XUV can impact near-term demand, but in the past consumers have absorbed 3% hike; rural stimulus to aid incomes and help lower excise impact on UV demand; and normal monsoon remains key trigger for tractor demand recovery; other building blocks are in place for a sharp demand recovery (akin to M&HCVs).
Management indicated margin will be impacted due to expiration of excise duty benefits at Haridwar plant (in Q4FY16 100bps).
Hence, we revise down our FY17/18E EPS 5% each. Maintain ‘Buy’ with SOTP–based target price of `1,337 (13xFY18E core business; `346 for other businesses).
We estimate EPS CAGR of 17% over FY16 –18 with an upside risk in case of faster recovery in rural demand (Uvs/tractor) and stronger response to M&M’s new launches.
Strong margin performance during tough times indicates the company’s profitability focus. We maintain ‘BUY/SO’ despite a modest 5% upside from CMP.