M&M Share Price Rallies After Q1 PAT Rises 60% YoY; Brokerages Factor 14-20% Upside

Auto giant, Mahindra & Mahindra (M&M) share price rallied by nearly 4% on Monday after surpassing street's estimates in Q1FY24 earnings. The stock trades near its day's high currently. M&M's quarterly results were driven by operating leverage coupled with capital allocation actions and monetisation. The majority of brokerages have raised their target price on M&M shares on a strong growth outlook ahead.

At the time of writing, M&M shares performed at Rs 1518.35 apiece, up by Rs 53.30 or 3.64% on BSE. The stock was near its intraday high of Rs 1519.75 apiece.

In the previous session, the stock stood at Rs 1465.05 apiece.

In Q1FY24, the Mahindra Group's automobile flagship reported a consolidated net profit of Rs 3,508.41 crore (attributable to owners), by a whopping 59.79% YoY and 33.06% QoQ. Revenue from operations stood at Rs 33,406.44 crore in Q1FY24, registering a growth of 17.58% YoY.

M&M said it delivered a stellar Q1 performance with a Net profit of Rs 3,508 cr, up 60%. Operating leverage drove improvement in profits by 2.2x in Auto, 58% in MMFSL and 21% in Farm. This coupled with capital allocation actions and monetisations resulted in a significant step up in Group's profitability.

Should you buy M&M shares after the Q1 results?

In the Q1 review report on M&M, Himanshu Singh - Research Analyst, Prabhudas Lilladher said, "We increase our FY24/FY25 EPS estimate by c13%/8% to factor in higher ASP, margin beat, higher other income. M&M's 1QFY24 revenue came above our and consensus estimate, led by higher-than-expected ASPs at the Automotive segment. EBITDA margin at 13.4% came above our estimate of 12.7%, and largely in line with consensus. Management noted that commodity costs have softened and should support margins, coupled with the better mix, operating leverage and price hikes. Supply issues have normalised and MM is on track to reach 49k unit exit SUV capacity for FY24. MM noted no change in capital allocation policy and tried to calm investor concerns with a detailed presentation on the same, which we think should help in investor confidence."

Singh's note added, "M&M should benefit from (1) growing customer preference for SUV, (2) ramp-up in production to fulfil strong demand and order book, (3) market share gains in the tractor industry from new segments, (4) ramp-up in EV portfolio starting 2025. Also, benign RM, operating leverage and end of a volume of introductory priced model would benefit margins (we built in c160bps expansion over FY23-25E). Retain 'BUY' with TP of Rs 1,760 (18x on Mar-25E core EPS and Rs 360 for subsidiaries) vs Rs 1,685 earlier."

From last week's Friday's level when results were declared, M&M shares have a potential upside of 20.13% if taken into consideration the PL target price.

Meanwhile, JM Financial's research note said, "Gradual addition to SUV capacity (by 4QFY24), high outstanding bookings (280k+ open bookings) and healthy new bookings' rate are likely to drive sales growth. Operating leverage and cost control initiatives are expected to support the margin performance going ahead. Management indicated that investment in RBL bank (3.5% stake) is primarily to understand the banking industry. Driven by a strong demand tailwind in autos, we maintain BUY with a Jun'24 target price of Rs 1,675 (SOTP valuation, 16x core business). Peaking the tractor cycle is the key risk to our call."

JM Finacial's target price indicates a potential upside of 14.33% on BSE.

Furthermore, brokerage LKP Securities expect strong SUV runs to continue as the semi-conductor issue is minimum. Within the Auto sector, the robust order book of Scorpio N variants, Thar and XUV family should assist SUV growth in coming quarters. We expect mid-single digit growth for the FES segment on waning tractor cycle and possible El Nino impact, though it cannot rule out better than expected performance depending on monsoon in the second half of the season given the strong first half performance.

LKP's note also said, "New launches may provide some fillip to FES. In EV 3Ws and LCVs too, with new launches the company is in a position to expand its market leadership position. Within EVs the company has entered a tie-up with Volkswagen for battery management and is in a position to increase its capex with reducing debt and increasing cash flows. M&M has over time exited its loss-making businesses and have turned around several businesses which would definitely gather confidence of shareholders. The company has identified several growth levers, which can leverage the core strength of M&M group and accelerate the growth for the company
over the medium term."

In regards to RBL stake acquisition and Temasek stake, LKP views the deal as positive for M&M.

Accordingly, LKP's note said, "We maintain BUY on attractive valuations; SoTP-based target price stands at ₹1,727 (₹1,382 core business valued at 12x FY25E earnings + subsidiary valuation of ₹345) in line with our assumptions of margin improvement on increase in volumes and value of SUV, 3Ws and LCV segments, decent growth in FES, production increase offering operating leverage, price hikes and prudent cost reduction measures.

Taking LKP's target price, M&M stock could rise by nearly 18%.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns. in advises users to consult with certified experts before making any investment decision.