The following is the Stock Analyst Note on Mahindra & Mahindra issued by Morningstar Analyst Manish Vaswani. Registered Morningstar Members gain exclusive access to our full Mahindra & Mahindra Analyst Report, including fair value estimates, consider buying/selling prices, bull and bear breakdowns, and risk analyses. Not a Registered member? Get these reports immediately when you sign up with Morningstar for free.
Mahindra & Mahindra reported robust third-quarter results on the back of continued strong performance of its automotive segment, primarily its diesel-powered passenger utility vehicle portfolio.
In line with our expectations, Mahindra continues to benefit from a strong demand for diesel vehicles. While we have made modest downward revisions to our three-wheeler, commercial vehicle, and tractor unit volume forecasts for full-year fiscal 2013, an increase in valuation due to time value of money negates any revisions to our fair value estimate of INR 906.
Third-quarter revenue for the standalone operations, which includes the automotive and the farm equipment businesses that together account for more than three quarters of the company's revenue and about three quarters of its operating margins, rose about 25% year over year, owing primarily to a 17.5% increase in automotive unit volumes to 146,878 vehicles.
We are pleased to see continued strong demand for the company's utility vehicles. However, Mahindra's farm equipment business did not perform as well since tractor volumes fell 1.5% to 64,800 units, largely due to a continued slowdown in the overall tractor market.
Third-quarter operating margin declined by 30 basis points to 11.5% due to slight increase in material costs as well as certain one-time expenses booked during the quarter. Mahindra's third-quarter net income, however, increased by more than 30 basis points due to a decline in interest expense and lower taxes during the quarter.
The company expects taxes to be lower by 100 basis points this year compared to last year which is already built into our valuation model.
Mahindra's fiscal 2013 first nine months' automotive unit volumes have risen about 19% year-over-year, including a strong 30% increase in passenger vehicle volumes. However, the three-wheeler and the commercial vehicle segments have witnessed declines of about 2% and 10%, respectively.
We do not expect volumes in these segments to improve significantly in the last quarter of fiscal 2013. Additionally, tractor vehicle unit volumes have fallen by 5% in the first nine months, and we expect only slight improvement in the final quarter of fiscal 2013, leading to a lower 4% year-over-year decline in tractor unit volumes.
